The decentralized exchange GMX has been subjected to a $565K price manipulation ‘exploit.’

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Last Updated on September 19, 2022 by Bitfinsider

The decentralized exchange (DEX) GMX has reportedly been subjected to a price manipulation exploit by an exploiter who managed to steal $565,000 from the Avalanche (AVAX)/USD market.

The unidentified exploiter is thought to have taken advantage of GMX’s “minimal spread” and “zero price impact” features to carry out the exploit, which impacted GLP tokenholders who provided liquidity to GMX in the form of AVAX (the Avalanche token).

In a Sunday tweet, GMX confirmed the price manipulation exploit, but stated that the AVAX/USD market would remain open despite imposing a $2 million cap on long positions and a $1 million cap on short positions.

The exploiter “successfully extracted profits from GMX’s AVAX/USD market by opening large positions at 0 slippage,” according to Joshua Lim, head of derivatives at Genesis Trading, before transferring the AVAX/USD to centralized exchanges at a slightly higher price.

This exploit method was repeated five times, according to Lim, with the first cycle taking effect at 1:15 a.m. UTC on Sunday. Each cycle transferred more than 200,000 AVAX, worth approximately $4-5 million per cycle, with the exploiter profiting approximately $565,000 after paying spread to market makers on other exchanges.

According to technical analyst Duo Nine, the exploiter was able to profit from several large trades against GLP holders because the fixed prices supplied by the Chainlink-run oracles have no price impact, allowing for the price manipulation exploit.

While GMX immediately capped short and long open interest for AVAX/USD in order to protect the DEX from further manipulation, Lim stated that GMX may have to abandon its “zero price impact” feature despite successfully onboarding many users to date.

The recent exploit comes just weeks after Taureau, the founder of layer-2 DEX ZigZag, stated in a Sept. 2 video call that he doubts GMX’s exchange model will be sustainable in the long run, adding that a trader with the right strategy could wipe out GLP tokenholders.

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