Binance Alpha scoring tool ZKJ, KOGE flash crash under the mechanism vulnerability hunting

Jessy, Golden Finance

On the evening of June 15, the token ZKJ, which topped the trading volume chart on Binance Alpha, and KOGE plummeted by over 90% within half an hour.

Because these two tokens have extremely high LP annual returns and very low slippage wear experience, they have become the preferred tokens for earning Binance Alpha points. However, because they are used for point accumulation, their prices do not accurately reflect market value, laying the groundwork for a flash crash. At the same time, the project team has deliberately constructed a deformed path of insufficient unilateral liquidity for KOGE, requiring conversion through ZKJ for exit, which makes KOGE's liquidity highly dependent on ZKJ. When the market experiences fluctuations, this structure is prone to trigger a chain reaction of cascading failures.

Finally, the trigger for the event explosion occurred when three associated addresses withdrew $7.74 million in liquidity simultaneously during the Alpha rule adjustment that led to capital withdrawal. This action directly resulted in the depletion of market liquidity. Ultimately, the depletion of liquidity and the liquidation of contracts formed a death spiral, causing the token to lose 90% of its market value within half an hour.

The occurrence of this event can be said to be the inevitable result of multiple overlapping factors. In the end, it is still the retail investors who were injured, as they used these two tokens to boost their Binance Alpha points earnings.

Tokens selected under the Binance Alpha scoring mechanism

KOGE and ZKJ tokens are powerful tools for boosting scores on Binance Alpha. According to Dune data established by @pandajackson42, on June 14 alone, Binance Alpha's total trading volume reached $987 million, with ZKJ and KOGE trading volumes at $703 million and $159 million respectively, occupying the top two positions on the leaderboard.

First, according to the trading volume and LP weight scoring rules of Binance Alpha, its excessive reliance on these factors means that users will choose tokens with good liquidity and low trading costs to conduct large transactions in order to earn more points, even if these transactions may not have real market demand. ZKJ and KOGE happen to meet these conditions, allowing users to conduct wash trading between them to generate a large volume of transactions and quickly accumulate points.

Specifically, first is the characteristic of these two tokens having near-zero slippage - this is crucial for high-frequency traders, as regular tokens might incur a 5% loss on principal after ten trades, while these two tokens can achieve nearly no loss. Secondly, the APY design of the dual-token pool, where the project team uses algorithms to amplify early profits. Third, the liquidity depth is concentrated on the ZKJ path, creating a false sense of security. Finally, the contract supports ZKJ but not KOGE, allowing arbitrageurs to hedge unilateral risks using derivatives.

The characteristics of these two tokens led to the prevalence of the strategy "ZKJ - KOGE low slippage" in the crypto community during the Binance Alpha airdrop event. This strategy, tested and validated by market traders, is considered an effective method for accumulating points. Once this strategy spreads within the community, it attracts more users to adopt it, further making ZKJ and KOGE popular choices for point accumulation.

Human intervention during platform rule modification

On June 14th, Binance announced that starting from June 19th, the Binance Alpha airdrop will be distributed in two phases: Phase 1: Users who meet the score threshold (X) can receive priority, everyone gets a share; Phase 2: The threshold is lowered to Y (Y < X), first come first served, until the prize pool is exhausted or the event ends. This change is seen by some community members as an indirect catalyst for large holders' early withdrawal and LP exit behavior.

According to community user Emilia's observation, the KOGE project team has been continuously adding unilateral liquidity, controlling the price increase of the coin. This has also resulted in the actual liquidity of KOGE/USDT being much smaller than what is visible. Once a large holder dumps KOGE, the remaining LPs will be unable to exit the KOGE/USDT pool and will inevitably have to exchange for ZKJ, further leading to a cascading effect.

At the same time, some large holders established short positions for ZKJ on CEX to prepare for subsequent hedging. When market activity slowed down, APY declined, and the volume of funds being manipulated decreased, the large holders began to withdraw from LP one after another and exchanged their KOGE for ZKJ, subsequently concentrating on selling ZKJ, completing their capital exit. As a result, the spot price quickly plummeted, and a large number of long positions in ZKJ contracts were liquidated, further amplifying the downward movement.

According to analyst @ai_9684xtpa's tracking, three associated addresses completed precise collaborative operations between 20:28 and 20:50, which was their "withdrawal + sell-off" hunting action, becoming the final trigger for the outbreak of this incident:

Phase 1: Drain Liquidity (20:28-20:33)

Address A (0x1A2...27599) was the first to remove the ZKJ/KOGE liquidity pool, withdrawing tokens worth $4.29 million (including 3.76 million KOGE and 530,000 ZKJ);

Address B (0x078...8bdE7) synchronously withdrew $3.45 million in liquidity (2.07 million KOGE + 1.38 million ZKJ). Market impact: Liquidity pools are instantly depleted, and tokens lose price support.

Phase Two: False Warehouse Hiding (20:28-20:58)

The two addresses will exchange the withdrawn KOGE for ZKJ (a total of 6.05 million USD), creating a false appearance of "massive trading" on the chain, misleading investors into misjudging market activity.

Stage Three: Ladder-style Dumping (20:30-20:50)

Address A sell-off: Sold 1.57 million ZKJ in batches (worth 3.05 million USD), causing a slight decline in the token;

Address B's fatal blow: A concentrated sell-off of 1 million ZKJ ($1.94 million) triggered a minute-level crash of KOGE;

Address C (0x6aD...e2EBb) cleared out: After receiving 770,000 ZKJ transferred from Address B, it was quickly sold off, completely breaking through the ZKJ price line.

The entire selling process adopted a "low volume, multiple transactions" strategy, which avoided triggering market alerts with large orders, until the concentrated sell-off from address B caused a collapse avalanche.

Summary:

The outbreak of this incident is the inevitable result of multiple overlapping factors. Firstly, Binance Alpha's excessive reliance on trading volume and LP weight point rules has created a volume-filling bubble, making ZKJ/KOGE a "point-filling tool" with no real demand. The project party deliberately constructed a distorted path of insufficient unilateral liquidity for KOGE, such as requiring ZKJ redemption for withdrawal, coupled with large holders preemptively establishing ZKJ short positions. Ultimately, when three associated addresses took advantage of the Alpha rule adjustments to trigger capital withdrawal, they simultaneously withdrew $7.74 million in liquidity and created false trading volume by swapping KOGE for ZKJ, leading to a cascading sell-off through laddered selling. This resulted in a death spiral of liquidity exhaustion and contract liquidation, causing the token to evaporate 90% of its market value within half an hour.

For investors, it seems that behind all reliance on a single incentive, such as the "zero-friction high returns" generated by score-brushing airdrops, lies a fatal trap, which serves as a warning to investors.