GMX DEX Gets Rekt

In today's edition of YIYL(You Invest, You Lose), we head over to Avalanche the second biggest ETH killer of this cycle failure behind Solana! As you can tell I am having ball of a time with this series, it’s like the own goals never end, I don’t even go looking for this stuff anymore

I just tend to see the memes in my feed and follow it for the 😂 lols! Anyway back to the story at hand, DEXs are a very popular method of trading due to the ease of logging in and creating trades but they simply don’t have the liquidity that centralised exchanges have so you have to limit your DEX trades or get pawned by slippage.

Slippage is a big problem for DEXs and one of the reasons they create these massive token ponzis to try and attract seed capital by rewarding you in their native token in crazy APRs hoping that if it brings in enough liquidity and fees they can later remove the supply by creating a fees buy back program and find and equilibrium

Securing liquidity for your casino

Now attracting liquidity is easier said than done and those with any real weight do their maths before they size up a position in a pool. This is a reality of the game of DEXs I don’t even like to call them that because none of them are Decentralized but that’s a quibble for another day.

So what some "dex's do is offer people their shitcoin as a pair with the best APR and then sell their shitcoin to users coming in, then use those sales to buy up coins in other pairs so they can have liquidity in other pairs.

For a DEX there sure is a lot of intervention and open market operations but hey, what do I know? I'm just observing the bullshit for what it is, oh look a penguin?

Honestly, sometimes I think people who fall for this have a sign on their back that says rek me. It doesn't take that long to do your research but yo 70% APR, I'm in what could go wrong.

If offering 70% APR was a good idea and worked, then people would be flocking to Argentina with their money trying to frantically convert dollars, Euros, and pounds into Pesos, but I don't see that happening so what makes DEFI different?

Enter GMX

Now shitcoiners tend to not accept reality for what it is and are always trying to cheat rational limitations to disastrous effects and this was no different.

GMX is a decentralized cryptocurrency exchange that's entire selling point as it figured out how to do DEXs without having a liquidity issue and boasts zero price impact trades.

GMX offers Perpetual futures a type of open futures contract without a settlement date. GMX offers spot and perpetual futures, and tries to offset spot trades with hedging in the futures market.

GMX runs on two chains namely Arbitrum and the L2 no one gives a shit about because it's all MATIC bro, and then Avalance, GMX holds more than $342 million locked up on Arbitrum, a layer-two ETH solution, and $67 million on Avalanche’s blockchain.

Setting itself apart from the pack

On most exchanges, users have to contend with slippage: a difference between the price of a token when the user goes to enter the trade and the price when the trade is executed.

Now the thing with DEXs is there are so many shitcoins in it there is always a pair you could exploit if you have enough capital but hey what do I know? I'm just a guy with grade 12 math behind me

The risk of slippage

As I explained briefly with DEXs if a large trader comes in with a sufficiently large trade it can itself cause slippage, particularly with crypto assets with lower liquidity. So if GMX is offering no slippage they have to hold the floor price and eat the losses should someone be able to dump a large amount.

And that's just what one trader did, found a rule no one was using, had the capital to execute the trade, and walked away with a handsome profit.

And that’s just what they did

A whale was able to take advantage of this "feature" by taking large positions in AVAX, the token belonging to the Avalanche blockchain, which has relatively low liquidity compared to larger tokens like Bitcoin or Ether.

This bank rolled trader then pushed around the price of Avalance by making large trades on a centralized exchange, and then dumping on the DEX taking an estimated profit of between $400,000 and $450,000 after fees.

This is the risk that comes with illiquid markets and then still layering on derivates on top of it. There are a reason futures, ETFs, calls, and puts are only offered on certain financial products that have a liquidity profile that can handle the settlement, but hey my shitcoin can do it all, don't tell me what to do, I'll show you finance bros what the blockchain can do.

Luckily all these blockchains will fail eventually so they won't have permanent records of their fuck ups other than the mountain of articles and tweets.

A long-standing issue with the product

This was not some unknown exploit, some had publicly expressed concerns about the possibility of such an exploit earlier in September: Taureau, a founder of another decentralized exchange, had outlined the possibility of an exploit like this on a podcast episode on September 1.

https://twitter.com/flywheelpod/status/1565719949435338752

GMX responded to the incident by capping the size of positions that users can take on AVAX.

https://twitter.com/GMX_IO/status/1571439325413511169?s=20&t=uV6Te6Z12HjqzdtHMKWq6A

The ripple effect of failure

Another project, MM.Finance, announced they would be pausing order execution on their MadMex platform, which is a fork of GMX and boy was that quite the shitshow. I am mightly impressed with how bad people are at risk management in this space but the more they fuck up, the more hodlign bitcoin makes you look like a super genius.

Sources:

• beincrypto.com
• cointelegraph.com

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