GMX decentralized exchange suffers $565K price manipulation ‘exploit’

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Decentralized exchange (DEX) GMX has reportedly undergone a price manipulation exploit by an exploiter who managed to take about $565,000 from the AVAX/USD market.

The unidentified exploiter allegedly capitalized on GMX’s “minimum spread” and “zero price impact” features to execute the exploit, impacting GLP token holders providing liquidity in the form of AVAX (the Avalanche token) to GMX.

GMX confirmed the abuse of price manipulation in a September 18 post on Twitter, but stated that the AVAX/USD market would remain open despite the imposition of a $2 million cap on long positions and a $1 million cap on short positions.

Head of Derivatives at Genesis Trading Joshua Lim was one of the first to analyze the exploit, stating that the exploiter “successfully took profits from GMX’s AVAX/USD market by opening large positions at 0 slippage” before launching the AVAX. /USD to centralized exchanges at a slightly higher price.

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Lim said this exploit method was repeated five times, with the first cycle taking effect at 01:15 UTC on September 18. Each cycle transferred over 200,000 AVAX tokens (approximately $4-5 million per cycle) with the exploiter winning approximately $565,000 in profit after paying spread to market makers on other exchanges.

However, Lim noted that this was not an “exploit” because it was “GMX working as designed”.

Technical analyst “Duo Nine” added that the exploiter was able to benefit of several large trades against GLP holders because the fixed prices provided by the Chainlink-run oracles have no price impact, allowing the abuse of price manipulation.

“When traders make a profit, the liquidity providers lose. If traders exploit this vulnerability, the GLP holders could lose all their money!”

While GMX immediately capped short and long open rates for AVAX/USD to protect the DEX from further manipulation, Lim said GMX may need to remove its “zero price impact” feature, despite having successfully used many users to date. has introduced.

“The real problem is that GMX doesn’t reflect the true cost of liquidity like other venues do. It offers unlimited liquidity at a mid-market oracle price.”

The recent exploit comes just weeks after the founder of Layer-2 DEX ZigZag “Taureau” said in a Sept. 2 video call that he doubted GMX’s exchange model would be sustainable in the long run, adding that a trader with the right strategy might erase from GLP token holders:

Community response

The news sparked mixed reactions from the GMX community. One Twitter user marked the fact that no smart contract was exploited, while another Twitter user early GMX whether compensation would be paid to the affected GLP holders.

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Related: What are decentralized exchanges and how do DEXs work?

On GMX, liquidity providers provide BTC, ETH, AVAX and stablecoins in exchange for the GLP token. The protocol was launched in late 2021 on Ethereum layer-2 scaling network Arbitrum.

The GMX token (GMX) currently costs $39.07, down 16.7% in the past 24 hours, according to CoinGecko.