Jump Crypto forced to save Solana with $320M bailout of its own company

Jump Trading's crypto subsidiary once again came to Solana's rescue, this time by preventing hacker-inspired meltdown across DeFi protocols.

The crypto subsidiary of trading giant Jump sunk $320 million to bailout its own token bridge last week, preventing potential meltdown across Solana and Ethereum markets.

Wormhole acts as an intermediary for crypto asset swaps between Ethereum (ETH) and Solana (SOL) blockchains, allowing users to transform Ethereum tokens into Solana-bound ones and vice versa.

But smart contract hackers exploited a bug within Wormhole to mint themselves hundreds of millions of dollars worth of Solana-based Wrapped Ether (WETH) without posting the Ether collateral usually required.

  • The thieves could then siphon Ether from the Wormhole protocol via the real Ethereum blockchain — a staggering sum that Jump reimbursed just hours later (some WETH was reportedly traded for other tokens on Solana’s network).
  • This meant the 120,000 WETH tokens minted by the hackers were completely unbacked when they should’ve been fully backed by an equal amount of Ether.
  • There’s currently 483,499 WETH tokens deployed to Solana, which means at least 25% of WETH’s supply on that network was initially minted by the hackers.

Jump Crypto’s bailout makes complete sense considering the firm acquired Wormhole developer Certus One for an undisclosed sum last August.

Berlin-headquartered Certus One has primarily built software for Proof-of-Stake blockchains, particularly staking optimizers, having operated since 2017.

Certus One’s platform has been reportedly utilized by the Terra and Cosmos ecosystems alongside Solana. The company’s website no longer exists and instead points directly to Jump’s own portal.

Wrapped Ether is used significantly across Solana’s DeFi ecosystem. It allows users to trade and otherwise utilize tokens representing exposure to Ether across various liquidity protocols and decentralized exchanges now native to Solana.

Jump Crypto lead Kanav Kariya described the Wormhole bailout as a “wETH backstop.”

Had Jump decided not to plug Wormhole’s losses, it’s generally believed that Solana’s DeFi protocols would’ve suffered cascading liquidations triggered by a collapse in WETH confidence and prices.

“If the [WETH] wasn’t backed up with Ether, it ​​would mean that a number of Solana-based platforms that accept [WETH] as collateral could become insolvent,” wrote blockchain analytics unit Chainalysis in its post-mortem (our emphasis).

“We could have seen users rush to sell their [WETH], causing its value to crash, which would have serious implications for the Solana blockchain and the extensive DeFi ecosystem built on top of it, as many of these protocols also rely on [WETH] to back assets issued to users.”

Wormhole hack forced Jump Crypto outside the curtain

Jump Trading is a Chicago-headquartered private quantitative trading firm (or “quant shop”) which has been historically tight-lipped about its immensely profitable operations.

Jump Trading was founded in 1999 and cut its teeth high-frequency trading on the Chicago Mercantile Exchange. It formed venture firm Jump Capital in 2012.

But the firm really made news for the first time in 2014 when New York prosecutors subpoenaed it and five other quant shops over potential “dark pools” and other special arrangements with exchanges on which it traded.

Jump Trading would reportedly start dabbling in crypto markets around one year later, eventually working with derivatives platform BitMEX, Tether issuers Bitfinex, and Robinhood Crypto.

A regulatory filing indicates that Robinhood earned 17% of its revenue from a Jump Trading subsidiary in 2021’s third quarter. The company paid Robinhood almost $250 million to route crypto trading orders through its systems during this period.

CNN went behind-the-scenes at fellow Chicagoan quant shop Citadel years back.

Jump Capital coincidentally raised $350 million in a massive funding round around the same time. It announced an increased focus on crypto startups and now employs over 140 workers just within its crypto division, according to a tweet from Jump Crypto lead Kanav Kariya.

Also last September, Jump Trading spun out Jump Crypto as its own fully-fledged subdivision. Almost immediately, the crypto unit faced its first serious test in the form of a severe Solana network outage on September 14.

Much like the recent Wormhole incident, Jump Crypto was a leading coordinator with Solana insiders to bring the blockchain back online.

Jump Crypto too deep in Solana not to help

Indeed, like Sam Bankman-Fried’s Alameda Research, Jump is one of Solana’s largest market makers, arbitrageurs, and institutional investors, with billions of dollars worth of capital deployed across Solana’s ecosystem.

Protos revealed in November that Jump is a direct customer of Tether and at the time had received over 98% of all USDT issued on Solana.

Jump Crypto signed a deal with Solana startup Serum for an undisclosed sum last year.

This encouraged the firm to plug its USDT into Serum-powered decentralized exchanges like Mango to boost their liquidity, as well as “make markets” by keeping order books greased.

USDT and SOL are the primary denominators for trading pairs on Solana-based exchanges.

In fact, it’s incredibly likely that Jump’s USDT denominate more than $1 billion worth of positions across dozens of Solana and Ethereum-based exchanges, warranting its decision to cover Wormhole’s losses even further.

Jump Crypto may have received just 1% of all USDT ever issued but that’s a lot for Solana in its current form. It’s a significantly smaller ecosystem than Ethereum.

Read more: [Tether Papers: This is exactly who acquired 70% of all USDT ever issued]

Jump’s previous investments in the crypto niche include Mexico City-based exchange Bitso, Austrian exchange BitPanda, and Indian exchange CoinCDX.

Its portfolio also includes the decentralized finance firm 0x, data feed provider Pyth, and compliance software Notabene.

Jump and FTX both love Solana

Hypothetically, Alameda Research’s Bankman-Fried could’ve also been swayed to bailout Wormhole.

Solana is often described colloquially as the billionaire wunderkind’s personal blockchain network, and Bankman-Fried remains one of its most persistent cheerleaders.

Jump Crypto and Alameda Research often contribute to the same funding rounds for startups like Tulip Protocol, Zeta, and Three Arrows.

Both Jump Capital and Alameda Research’s sister org FTX invested in ventures like gaming studio Faraway. 

Like all blockchains, Solana describes itself as decentralized. And while there’s many different metrics for that spectrum, the code powering Solana is anything but.

Bankman-Fried made the right call. SOL is now worth over $110.

In a September podcast, Solana founder Anatoly Yakovenko revealed that just 20 people were active contributors to Solana’s code — 15 of whom work for Yakovenko.

Still, Jump Crypto is clearly the loser in this particular scenario as it’s down $320 million just to keep Solana’s DeFi protocols afloat.

All while Solana’s network’s native token SOL has firmly rebounded from its 15% drop inspired by the Wormhole hack. SOL now even trades 6% up on its pre-Wormhole price.

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Edit 09:44 UTC, Feb 8: Clarified it was a Jump Trading subsidiary paid by Robinhood in paragraph 16 (not Jump Crypto). Bitpanda is an Austrian crypto exchange in paragraph 26