Virtuals Protocol (VIRTUAL) Loses 9.5% After Reported Security Vulnerability, Controversial Team Response

The artificial intelligence (AI) crypto boom, which recently pushed the sector's market cap past $10 billion, has hit turbulence.

Artificial intelligence (AI) crypto had a recent market cap surge, pushing the sector past the $10 billion mark. However, this promising landscape was met with turbulence as a top-performing token, Virtuals Protocol (VIRTUAL), encountered a reported security vulnerability and subsequent controversy.

As per jinu (@lj1nu), a blockchain security researcher, the vulnerability in Virtuals Protocol’s code was revealed on January 2 via X. After attempting private disclosures on the project’s Discord server, which were allegedly ignored, jinu proceeded to report the issue publicly.

The vulnerability, which was also confirmed by another expert, 33Audits (@solidityauditor), enabled attackers to predict and create a Uniswap V2 token pair before Virtuals could. This flaw had the potential to delay token launches and disrupt the platform’s operation.

Following jinu’s public disclosure, the Virtuals team quickly patched the issue and deployed a new smart contract. However, their handling of the initial report drew attention and sparked a sell-off in VIRTUAL tokens.

According to Coinmarketcap data, VIRTUAL's price dropped by 9.5% within a single day, plummeting from $4.73 to a 24-hour low of $4.10 before recovering slightly to $4.25 at press time.

Despite recent weekly gains of 30%, the security scare introduced fear, uncertainty, and doubt (FUD) among investors, impacting the token’s price movements.

This incident occurred during a period of significant market activity for the AI crypto sector. Among the leaders in this niche is Virtuals Protocol, which now faces the challenge of rebuilding trust while attempting to capitalize on the growing trend.

The handling of the vulnerability report by the Virtuals team has been met with criticism from security experts. Jinu expressed surprise over a project of Virtuals’ scale appearing indifferent to security issues.

Moreover, 33Audits and others revealed that they had tried to report the same flaw earlier but were banned from the team’s official Discord and Telegram servers.

Such actions, while rare in the open-source blockchain community, have far-reaching consequences. “I’m surprised that a project as big and hot as @virtuals_io doesn’t care about security,” added jinu.

This incident highlights the importance of prioritizing user safety and managing community interactions, both of which can significantly influence investor confidence.