Developers recently revealed that a four-year-old vulnerability in Orchard could have allowed unlimited counterfeiting of Zcash (ZEC) until an emergency patch is released. However, new market data has raised further questions regarding the events leading up to the discovery.
Allium Labs, after reviewing trading history, identified unusual trading activity. On May 26, ZEC trading volume increased 12-13 times above its average. Researchers discovered the defect privately three days later, on May 29.
As researchers identified the fault, ZEC fell from around $660 to $530, indicating increasing selling pressure. The developers disabled Orchard on June 2 and released a patch on June 3, but trust continued to crumble.
As of June 5, ZEC had fallen 64%, from $685 to $247, with hourly trading of $560 million.
Early positioning fuels market suspicion
The uncertainty that followed this issue also led to increased scrutiny of parties who were actively trading in the market before the issue became apparent. Allium found that traders opened the most profitable positions on May 25 and 26.
This happened just days before the private discovery of the Orchard Fault. More importantly, traders opened these large positions before researchers privately revealed the flaw on May 29. Notably, the largest portfolio had a short position worth $34.5 million and thus made approximately $998,000 in profits.
A second short position worth $17.7 million generated profits of approximately $724,000. These high profits raised questions about whether traders anticipated the sell-off.
However, the data does not provide enough evidence to support such claims. In futures markets, all short positions are offset by an equal number of long positions. Therefore, simply showing profitable positions is not sufficient to establish that those positions existed due to prior knowledge.
This balance became evident when the largest long position of $91.5 million ultimately lost $6.97 million. Meanwhile, Zcash’s privacy model prevents anyone from checking whether the flaw has already been exploited. This caused markets to price probabilities over certainty and kept confidence fragile despite the update being completed.
Final Summary
- Allium Labs reported unusual ZEC transactions before the Orchard breach was discovered, fueling suspicions of enlightened positioning.
- The profitable shorts raised questions, but the lack of evidence and Zcash’s privacy kept trust fragile.
