Decentralized trade (DEX) GMX has reportedly suffered a value manipulation exploit from an exploiter who managed to make off with round $565,000 from the AVAX/USD market.
The unidentified exploiter is known to have capitalized on GMX’s “minimal unfold” and “zero value affect” options to drag off the exploit, which impacted GLP token holders who offered liquidity within the type of AVAX (the Avalanche token) to GMX.
GMX confirmed the value manipulation exploit in a Sept. 18 submit on Twitter, however said that the AVAX/USD market would stay open regardless of imposing a $2 million cap on lengthy positions and $1 million cap on brief positions.
We had been notified of value manipulation of AVAX/USD on reference exchanges by monitoring methods and group members.
Whereas we evaluate the prevalence, open-interest for AVAX has been capped at $2m lengthy / $1m brief.
GLP and GMX buying and selling markets proceed to function usually.
— GMX (@GMX_IO) September 18, 2022
Head of Derivatives at Genesis Buying and selling Joshua Lim was one of many first to research the exploit, stating that the exploiter “efficiently extracted earnings from GMX’s AVAX/USD market by opening giant positions at 0 slippage” earlier than transferring the AVAX/USD to centralized exchanges at a barely increased value.
Lim stated this exploit technique was repeated 5 occasions, with the primary cycle taking impact at 01:15 UTC on Sept. 18. Every cycle transferred greater than 200,000 AVAX tokens, (roughly $4-5 million per cycle) with the exploiter extracting about $565,000 in revenue after paying unfold to market makers on different exchanges.
3/ let’s check out the primary cycle which happened from 01:15:31 to 01:28:11 UTC. X was in a position to extract roughly $158k in revenue by buying and selling clips of $4-5mm at a time pic.twitter.com/W6eu7Iz6lz
— Joshua Lim (@joshua_j_lim) September 18, 2022
Lim nonetheless famous that this wasn’t an “exploit” in that it was “GMX working as designed.”
Technical analyst “Duo 9” added that the exploiter was in a position to take advantage of a number of giant trades towards GLP holders as a result of the fastened costs provided by the Chainlink-run oracles include no value affect, which is what made the value manipulation exploit potential.
“If merchants make revenue, the liquidity suppliers lose. If merchants exploit this vulnerability, the GLP holders might lose all their cash!”
Whereas GMX instantly capped brief and lengthy open curiosity for AVAX/USD to guard the DEX from additional manipulation, Lim stated that GMX might must scrap its “zero value affect” function regardless of it efficiently onboarding many customers so far.
“The actual situation is GMX would not mirror the true value of liquidity like different venues do, it affords limitless liquidity at a mid-market oracle value.”
The latest exploit comes solely weeks after the founding father of Layer-2 DEX ZigZag “Taureau” stated in a Sept. 2 video name that he doubted GMX’s trade mannequin could be sustainable over the long run, including {that a} dealer with the proper technique may wipe out GLP token holders:
Has $GMX constructed a viable system for the long-run?
ZigZag Founder @taureau_21 has his doubts… and predicts ultimately {that a} dealer with the proper technique and correct measurement will wipe out $GLP
Full Episode https://t.co/3k3oLdHFWq pic.twitter.com/MF2Qafxs57
— Flywheelpod (@flywheelpod) September 2, 2022
Group Response
The information led to combined reactions from the GMX group. One Twitter person highlighted the truth that no sensible contract was exploited, whereas one other Twitter person asked GMX whether or not any compensation could be paid out to affected GLP holders.
Associated: What are decentralized exchanges, and the way do DEXs work?
On GMX, liquidity suppliers provide BTC, ETH, AVAX and stablecoins in trade for the GLP token. The protocol was launched in late 2021 on Ethereum layer-2 scaling community Arbitrum.
The GMX token (GMX) is presently priced at $39.07, down 16.7% during the last 24 hours, in response to CoinGecko.