Rival criticize dYdX for “centralized” response to market manipulation assaults
DYdX, a number one decentralized perpetuals alternate, introduced it has engaged regulation enforcement after uncovering the id of the perpetrator behind alleged market manipulation assaults that transpired in This autumn 2023.
In a Jan. 3 postmortem of the assaults, dYdX mentioned it’s in communication with the attacker and is helping in an ongoing investigation into the incident being carried out by regulation enforcement.
“Because of the efforts of our group, companions in the neighborhood, and forensics contractors, investigative outcomes have uncovered the id of the attacker and we’re in contract with them,” dYdX mentioned. “DYdX is helping regulation enforcement of their investigation of this matter and is assessing all authorized choices. DYdX is dedicated to taking any authorized motion it deems applicable in these circumstances.”
The submit additionally outlines measures taken by the dYdX protocol to guard towards future incidents. These embrace revising the margin thresholds obtainable for “less-liquid” markets, increasing monitoring monitoring the open curiosity of lively positions, and restrictions on customers’ skill to withdraw unrealized income within the occasion of “irregular exercise” on the platform.
“These measures will impede different unhealthy actors from making an attempt to make use of the identical technique to take levered place, manipulate spot costs, withdraw towards mark-to-market good points, and repeat,” dYdX asserted.
Nevertheless, dYdX’s dealing with of the incident has attracted criticism from its rivals, who decry the challenge for resorting to centralized techniques.
Adam Cochran, a councilor to Synthetix, the distinguished decentralized derivatives protocol, lambasted the measures taken by dYdX in response to the incidents.
“DYdX has previously 24 hours: auto de-leveraged worthwhile merchants closing their trades, [and] threatened to sue merchants for losses incurred from their unhealthy param[eter]s,” Cochran mentioned. “When you simply purchase up an asset that is illiquid then quite a lot of jurisdictions do not take into account that to be an issue… actually, the onus is on the system right here.”
A French court docket not too long ago dismissed prices towards the perpetrator behind an exploit concentrating on Platypus Finance, deeming they interacted with publicly obtainable good contracts in response to how they had been written.
“Fairly spectacular [dYdX[ are able to replicate all of these centralized exchange strategies while being decentralized,” tweeted Kain Warwick, the founder of Synthetix.
Market manipulation
According to the team, dYdX v3 suffered two separate market manipulation attacks in October and November.
The first incident targeted dYdX’s SUSHI market between Oct. 29 and Nov. 3. The attacker deposited $5.3M and took out several 5X leveraged long positions that resulted in the token’s price spiking by 180%. As the price jumped, the malicious actor withdrew unrealized profits from their position, which were then used to open additional leveraged long positions.
The dYdX team took note of the attack and increased the margin requirement for its SUSHI/USD market to 100%, forcing the attacker to close their position — pocketing a $5M profit in the process.
Using the profits realized from the SUSHI attack, the attacker then set their eyes on YFI. The malicious trader sought to replicate the same strategy, opening sizable 5X long positions before funneling unrealized profits into new long positions as YFI’s price increased. YFI soared 215% from $6,500 to $14,000.
On Nov. 17, dYdX again responded by increasing margin requirements for YFI, resulting in the token’s price plummeting over the following day. With YFI comprising a largely illiquid market, the attacker was unable to close their position before the crash and the majority of their positions were liquidated.
On Nov. 18, Anotonio Juliano, the founder of dYdX, announced that $9M had been mobilized from the project’s insurance fund to cover shortfalls caused by the violent YFI liquidations.
