[ARC] Price Manipulation Implications for Aave V2: September 2022

Background

Recent price manipulation on exchanges, including GMX, may have market risk implications for Aave. We are continuing to monitor the situation but wanted to bring this topic forward to the community and welcome any feedback and discussion in the meantime.

Next Steps

  • Monitor risk implications for Aave
  • Welcome thoughts and discussion from the community
4 Likes

Are you looking at every asset or especially at those with low liquidity, like in the case with GMX and AVAX.

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I’m looking at every aspect it doesn’t matter small or big we can help you that’s what we do :smiling_face_with_three_hearts:

Thanks, @EzR3aL - we are analyzing the assets that are most likely to present risk to Aave, of which liquidity is one factor.

As an update on KNC: KNC represents a small fraction of both total supply and borrow on Aave (less than 1% for each), with total collateral usage at about $63k. The health factors for nearly all borrowers on Aave with KNC supply are currently robust, as indicated in the chart below:

The users who are most likely at risk hold very small borrowing balances, but we note that the two largest borrowers with KNC supply are close to the “at risk” threshold of 1.0. We will continue to monitor the situation.

2 Likes

I find the AVAX-GMX situation incredibly fascinating: GMX’s core proposition of “zero slippage trading” heavily relies on oracles which pull data from CEXes. And thus can be gamified.

The exploiter opened levered long & short positions on GMX on the AVAX/USD pair and then proceeded to move the price on exchanges in his favour. He did that about 5 times. I’ve seen different estimates on the profitability but $500k-700k seems to be consensus.

Has this event changed anything in Gauntlet’s approach to analysing risks for Aave markets?

What about implications for v3?

Any direct action items such as capping borrow limits?

Thanks, @nonstopTheo - we continue to iterate on our proactive alerting and monitoring system, which includes screening for accounts that become at risk. These are additional to our simulation analyses to adjust risk parameters. For V3, we are continuing to integrate V3 into our platform. We’d note that V3’s siloed borrowing feature can protect against assets with potentially manipulatable oracles. Besides siloed borrowing, supply cap and borrow cap on v3 are useful tools for limiting the protocol’s exposure to specific collateral or borrow assets.

1 Like