The unknown exploiter is known to possess capitalized on GMX’s “minimal spread” and “zero cost impact” features to drag from the exploit, which impacted GLP tokenholders who provided liquidity by means of AVAX (the Avalanche token) to GMX.
GMX confirmed the cost manipulation exploit inside a Sunday publish on Twitter, but mentioned the AVAX/USD market would remain open despite imposing a $two million cap on lengthy positions along with a $a million cap on short positions.
I was notified of cost manipulation of AVAX/USD on reference exchanges by monitoring systems and community people.
Basically we evaluate the occurrence, open-interest for AVAX continues to be limited to $2m lengthy / $1m short.
GLP and GMX buying and selling markets still operate normally.
— GMX (@GMX_IO) September 18, 2022
Mind of derivatives at Genesis Buying and selling Joshua Lim was among the first to evaluate the exploit, proclaiming that the exploiter “successfully extracted profits from GMX’s AVAX/USD market by opening large positions at slippage” before transferring the AVAX/USD to centralized exchanges in a slightly greater cost.
Lim stated this exploit method was repeated five occasions, using the first cycle taking effect at 1:15 am UTC on Sunday. Each cycle transferred greater than 200,000 AVAX, roughly $4-5 million per cycle, using the exploiter removing about $565,000 in profit after having to pay spread to promote makers on other exchanges.
3/ let us check out the very first cycle which required place from 01:15:31 to 01:28:11 UTC. X could extract roughly $158k in gain buying and selling clips of $4-5mm at any given time pic.twitter.com/W6eu7Iz6lz
— Joshua Lim (@joshua_j_lim) September 18, 2022
Lim however noted this wasn’t an “exploit” in it had become “GMX being employed as designed.”
Technical analyst Duo Nine added the exploiter could take advantage of countless large trades against GLP holders since the fixed prices provided through the Chainlink-run oracles include no cost impact, that is what made the cost manipulation exploit possible:
“If traders make profit, the liquidity providers lose. If traders exploit this vulnerability, the GLP holders may lose all of their money!”
While GMX immediately capped short and lengthy open interest for AVAX/USD to safeguard the DEX from further manipulation, Lim stated that GMX might need to scrap its “zero cost impact” feature despite it effectively onboarding many users up to now:
“The real concern is GMX does not reflect the real price of liquidity like other venues do, it provides limitless liquidity in a mid-market oracle cost.”
The current exploit only comes days following the founding father of layer-2 DEX ZigZag, Taureau, stated inside a Sept. 2 video call he doubted GMX’s exchange model could be sustainable within the lengthy term, adding that the trader with the proper strategy could eliminate GLP tokenholders:
Has $GMX built a practical system for that lengthy-run?
— Flywheelpod (@flywheelpod) September 2, 2022
This news introduced about mixed reactions in the GMX community. One Twitter user highlighted the truth that no smart contract was exploited, while another Twitter user requested GMX whether any compensation could be compensated to affected GLP holders.
On GMX, liquidity providers supply Bitcoin (BTC), Ether (ETH), AVAX and stablecoins in return for the GLP token. The protocol premiered at the end of 2021 on Ethereum layer-2 scaling network Arbitrum.
The GMX token (GMX) is presently priced at $39.07, lower 16.7% during the last 24 hrs, based on CoinGecko.