The artificial intelligence (AI) crypto-boom, which recently pushed the sector’s market capitalization past $10 billion, has experienced turbulence.
Virtual Protocol (VIRTUAL), the top-performing token, saw its price drop by 9.5% after a reported security vulnerability and a controversial response from the team shook investor confidence.
Security breach triggers sell-off
On January 2, blockchain security researcher jinu (@lj1nu) discovered a vulnerability in the Virtuals Protocol code via X. He publicly reported the issue after claiming that private disclosures on the project’s Discord server were being ignored.
According to jinu, the team responded dismissively, saying they don’t run a bug bounty, and then shut down the reporting channel he created.
The vulnerability, as explained to jino and confirmed by another expert, 33Audits (@solidityauditor), allowed attackers to predict and create a Uniswap V2 token pair before the Virtuals did. This flaw could have delayed the launch of the token and jeopardized the operation of the platform.
Jinu’s public disclosure forced a swift response. Within hours, the Virtuals team patched the issue and deployed a new smart contract. However, their handling of the initial report left a stain on their reputation.
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The price of VIRTUAL reflected the uneasiness in the market. The token fell from $4.73 to a 24-hour low of $4.10 before recovering slightly to $4.25 at press time, a 9.5% intraday drop, according to data from Coinmarketcap.
Despite a recent weekly gain of 30%, the safety scare has brought fear, uncertainty and doubt (FUD) among investors.
The incident occurred at a time when the crypto AI sector was experiencing a significant increase in market activity. Virtuals Protocol, a leader in this niche, now faces the challenge of rebuilding trust as it seeks to capitalize on the growing trend.
The handling of the vulnerability report drew criticism from security experts. Jinu expressed surprise that the Virtual Scale project seemed indifferent to security issues.
33Audits added that he and others had previously tried to report the same bug but had been banned from the team’s official Discord and Telegram servers.
Such actions, while uncommon in the open-source blockchain community, have far-reaching consequences. “I’m surprised that such a big and popular project like @virtuals_io doesn’t care about security,” remarked jinu.
The incident raises questions about how projects prioritize user safety and manage community interactions, key factors affecting investor confidence.
AI crypto market resilient despite setback
While Virtuals Protocol struggles with its reputation, the broader AI crypto market remains strong. According to Finbold, the sector surpassed $10 billion in market capitalization this week. Investors continue to pour funds into innovative AI-driven projects, despite isolated setbacks.
A key driver of the crypto AI boom is the development of artificial intelligence agents—autonomous programs designed to interact with blockchain systems.
Tokens associated with these agents have seen significant price activity, fueled by the promise of transforming areas such as project analytics, lending services, and autonomous on-chain transactions.
However, industry experts question the long-term viability of many of these tokens. Haseeb Qureshi, managing partner at Dragonfly, noted that while AI agents may replace some human influencers due to their consistency and availability, the current hype may be short-lived.
The technical limitations and lack of autonomy in most AI agents require significant human supervision, limiting their current usefulness.
