Hackers steal $540 million worth of crypto from ‘Axie Infinity’ game.

A cryptocurrency startup that operates a popular online game called “Axie Infinity” said Tuesday that hackers stole more than $500 million worth of cryptocurrencies.

Axie Infinity Publishers Sky Mavis Ltd. said on March 23 that hackers had infiltrated part of its Ronin network running the game. The infiltrators gained access to cryptocurrency accounts and extracted 173,600 ether and 25.5 million of USDC stablecoin.

“The breach happened as a result of social engineering, not a technical error,” said Aleksander Larsen, operations manager and co-founder of Sky Mavis.

It was the second largest crypto hack ever, according to analytics firm Elliptic. The assets were worth about $540 million at the time of the theft and are now worth about $615 million.

Sky Mavis shared a link showing the stolen funds are still in the hacker’s wallet. The company said it is working with analytics firm Chainalysis to track down the stolen funds. On Tuesday afternoon, ether price was unaffected by the news. On Tuesday, it was up 1.7% to $3,408.

“We are working directly with various government agencies to ensure the criminals are brought to justice,” Ronin said in the statement.

The hack is a blow to the crypto industry, which is moving into the mainstream with Wall Street buy-ins, celebrity endorsers, and high-profile Super Bowl ads. The federal government is considering further regulations for digital assets.

Launched in 2018, Axie Infinity is part of a small but rapidly growing lineup of so-called play-to-earn games. Also known as blockchain games, they mainly focus on buying, trading and selling virtual assets backed by non-fungible tokens or NFTs. The games are seen as an early foray into the metaverse, a more immersive future version of the internet where people are expected to work, learn, and be entertained.

According to Sky Mavis, “Axie Infinity” had more than 1.7 million daily users in February. In it, players collect digital pets called Axies, which they use in battles. You can sell the creatures and exchange them for digital currency. Some axes are worth more than others.

Many earn-to-play game developers are startups, but some of the big, publicly traded companies in the gaming industry have recently started experimenting in this category, including FarmVille maker Zynga inc

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and Assassin’s Creed creators Ubisoft Entertainment SA

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.

Some industry executives have expressed concerns about this Safety and value of NFTs in games, such as Microsoft Corp. Gaming boss Phil Spencer and the boss of “Fortnite” manufacturer Epic Games Inc., Tim Sweeney. Many gamers are also skeptical about the trend, fearing that earn-to-play is simply a money-making opportunity for developers.

The decentralized nature of crypto platforms, compounded by the often lacking experience of the developers of these platforms, leaves numerous vulnerabilities in the code for hackers to exploit. Since 2011, there have been 226 hacking incidents – not including the “Axie Infinity” hack – that have resulted in a theft of $12.1 billion, estimates research firm Crystal Blockchain.

In 2021, according to the company, there was a record 75 incidents in which $4.25 billion was stolen. The biggest crypto hack happened in August 2021 when a DeFi protocol called PolyNetwork lost $611 million worth of assets at the time of the hack.

One of the most well-known hacks was the Bitfinex collapse in 2016, which resulted in the loss of roughly $70 million worth of Bitcoin at the time. In February, FBI agents seized most of the stolen funds, which were valued at about $3.6 billion, and accused a Manhattan couple of laundering the stolen funds.

write to Paul Vigna at paul.vigna@wsj.com and Sarah E. Needleman at sarah.needleman@wsj.com

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