FUD Hits AI Crypto Following Ignored Security Flaw: Tanks 9.5%

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

Virtuals Protocol (VIRTUAL), a top-performing token, saw its price drop by 9.5% after a reported security vulnerability and the team’s controversial response shook investor confidence.

Security Flaw Spark Sell-Off

On January 2, blockchain security researcher jinu (@lj1nu) revealed a vulnerability in Virtuals Protocol’s code via X. He reported the issue publicly after claiming that private disclosures on the project’s Discord server were ignored.

According to jinu, the team responded dismissively, stating they were not running a bug bounty and then closed the reporting channel he had created.

The vulnerability, as explained by jinu and confirmed by another expert, 33Audits (@solidityauditor), allowed attackers to predict and create a Uniswap V2 token pair before Virtuals could. This flaw could have delayed token launches and compromised the platform’s operation.

Jinu’s public disclosure forced a quick response. Within hours, the Virtuals team patched the issue and deployed a new smart contract. However, their handling of the initial report has left a stain on their reputation.

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VIRTUAL’s price reflected the market’s unease. The token plummeted from $4.73 to a 24-hour low of $4.10 before recovering slightly to $4.25 at press time, a 9.5% drop within a single day, as per Coinmarketcap data.

Despite recent weekly gains of 30%, the security scare introduced fear, uncertainty, and doubt (FUD) among investors.

The incident unfolded at a time when the AI crypto sector was experiencing a significant surge 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 has drawn criticism from security experts. Jinu expressed surprise that a project of Virtuals’ scale appeared indifferent to security issues.

33Audits added that he and others had previously tried to report the same flaw but were 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 a project as big and hot as @virtuals_io doesn’t care about security,” jinu noted.

The incident raises questions about how projects prioritize user safety and manage community interactions, key factors that influence investor confidence.

AI Crypto Market Resilient Despite Setback

While Virtuals Protocol grapples with its reputation, the broader AI crypto market remains robust. According to Finbold, the sector surpassed a $10 billion market cap this week. Investors continue to pour funds into innovative AI-driven projects, despite isolated setbacks.

A key driver of the AI crypto boom is the development of AI agents—autonomous programs designed to interact with blockchain systems.

Tokens linked to these agents have seen significant price activity, fueled by the promise of transforming areas like project analysis, 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 could replace some human influencers due to their consistency and availability, the current hype might be short-lived.

Technical limitations and a lack of autonomy in most AI agents require significant human oversight, limiting their current utility.