GMX was reportedly hit by price manipulation of $565 K
Decentralized exchange (DEX) GMX was reportedly hit by price manipulation by an exploiter who made about $565,000 in the AVAX/USD market. Recently the founder of a competing DEX for GMX said on September 2 that an exploit would reduce the number of GLP holders. It happened 16 days later.
The anonymous user is understood to have exploited GMX’s “minimal spread” and “zero price impact” features to pull off the exploit, which impacted GLP token holders who provided liquidity in the form of AVAX (the Avalanche token) to GMX.
In a Twitter post on September 18, GMX confirmed the abuse of price manipulation but said the AVAX/USD market would remain open despite the introductioand explin of a $2 million long and $1 million short limit.
Head of Derivatives at Genesis Trading Joshua Lim was one of the first to analyze the exploit, stating that the exploiter “successfully extracted profits from GMX’s AVAX/USD market by opening large positions at 0 slippages” before transferring the AVAX/USD to centralized exchanges at a slightly higher price.
Lim said the exploit was repeated five times, with the first cycle applied at 01:15 UTC in September. 18. Each cycle traded more than 200,000 AVAX tokens (about $4-5 million per cycle), and the operator made about $565,000 in profit after paying spreads to market makers on other exchanges.
Lim however stated that this wasn’t an “exploit” in that it was “GMX working as designed.”
Technical predictor “Duo Nine” added that the exploiter was able to take benefit of several large trades against GLP holders because the fixed prices supplied by the Chainlink-run oracles come with no price effect, which is what made the price manipulation exploit probable.
“If traders make profit, the liquidity providers lose. If traders exploit this vulnerability, the GLP holders may lose all their money!”
Though GMX instantly stopped short and long open interest for AVAX/USD to protect the DEX from further manipulation, Lim said that GMX may need to scuffle its “zero price impact” feature despite it successfully onboarding many users to date.
“The real issue is 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 only weeks after the founder of Layer-2 DEX ZigZag “Taureau” said in a Sept. 2 video call that he suspected GMX’s exchange model would be sustainable over the long term, adding that a trader with the right strategy could wipe out GLP token holders.
The news brought about diverse reactions from the GMX community. One Twitter user highlighted the fact that no smart contract was exploited, while another Twitter user questioned GMX whether any recompence would be paid out to affected GLP holders.
On GMX, liquidity providers supply 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) is presently priced at $39.07, down 16.7% over the last 24 hours.