GMX Turns Setback into a Leap Forward

Early this week, GMX exchange witnessed a swift recovery in user activity following a significant hacking event. After experiencing a temporary decline due to the hack, GMX’s service altcoin staged a remarkable comeback. This reversal was largely fueled when the hacker, who initially siphoned off $40 million from the V1 GLP pool on Arbitrum, accepted a $5 million bounty and began returning stolen funds. The recovery process kicked off with two transactions that returned 10.5 million FRAX coins back to GMX’s developer wallet, as verified by PeckShield through blockchain notifications. In the wake of the attack, GMX halted V1 transactions on both Arbitrum and Avalanche networks while keeping the V2 operations unaffected.

How Did the Hack Occur?

The GMX team’s initial investigation revealed that the hacker exploited a re-entrancy flaw within the OrderBook contract. By manipulating the price within a Bitcoin short position, they artificially boosted the value of the GLP liquidity coin. This strategy enabled them to execute withdrawals with substantial gains, securing coins such as USDC, FRAX, WBTC, and WETH, totaling more than $40 million. In response to the breach, GMX paused trading and GLP coin minting on V1, extending these measures to Avalanche to prevent further risks.

What Action Was Taken After the Hack?

Post-attack, GMX issued a blockchain message offering the hacker a 10% settlement, equivalent to $5 million, urging the return of the remaining funds within 48 hours without pursuing legal action. The hacker responded favorably, signaling the initiation of the refund process with the message, “Okay, the money will be returned later.” The team actively collaborated with exchange partners and analysis firms to track and confirm the movement of funds.

The dispatch of two FRAX transactions amounting to $10.5 million underscored the bounty agreement’s significance. GMX stated that until complete restitution, GLP minting and burning on Arbitrum would remain suspended, reserving the current liquidity for affected users’ compensation. Users were advised to settle their open positions, whereas forks of the GMX V1 structure were recommended to adopt heightened safety measures.

The crypto market’s response was immediate. GMX’s service coin price, which hit a low of $10.45 post-hack, quickly spiked by 17% after the refund announcement. According to CoinMarketCap, the platform has processed a cumulative trading volume of $306 billion since launching on Arbitrum One in 2021, with an active position of $265 million. This incident has not only rejuvenated stakeholder confidence but also spurred vital discussions on security within decentralized exchanges.

Key takeaways include:

• The hacker exploited a re-entrancy vulnerability, impacting the OrderBook contract.
• A $5 million bounty successfully initiated the return of $40 million in stolen funds.
• GMX paused V1 transactions to safeguard the platform and its users.
• Market confidence was restored as GMX’s service coin price rallied significantly post-refund process.

The GMX exchange episode not only highlights the crucial need for robust security measures but also demonstrates resilience in the face of adversity, reshaping perceptions around the potential vulnerabilities and subsequent recovery strategies for decentralized exchanges. This event has set a precedent in offering innovative responses to similar challenges.