Perpetual trades are fancy products of markets as they open more rooms for those who want to have opportunities to leverage their trades. When it comes to Crypto ecosystem, FTX, Binance and BitMEX are popular platforms that are commonly used because of their relatively low fee, better user experience and liquidity.
Of course there is a blockchain-based solution for centralized perpetual markets, as well. Nowadays, GMX has gained a decent reputation thanks to its services (though I have not tested, yet). Besides, Mycellium, MUX protocol and Nex market are the trendy leverage service providers that are decentralized (!) as they stated.
Now that we highlighted some important details, let's talk about the recent price action on AVAX Perpetual Market.
I'm sure you have not seen such a flawless price action before in a chart of millions of dollars project. What's the case?
No Slippage Leverages on GMX = Danger ⚠️
GMX market was manipulated by a whale who took advantage of low liquidity of AVAX on the perpetual pair. The reason why it happened in the market is also directly related to the lack of slippage for the millions of dollars worth of positions.
Basically, GMX makes it possible for you to have a long or short position according to the available liquidity on the platform. Assuming that you want to have a $10m worth of long position, your new position does not affect the market and it is possible to take such actions to make both gains and enjoy rewarding mechanisms.
How did Whales Exploit GMX
It may be the most easiest part of this case. If you hold enough cryptocurrencies, it is likely for you to manipulate a low liquidity market without burden.
- Step 1: Open a long or short position on GMX
- Step 2: Go to Binance and FTX Perpetual markets and buy/sell millions of dollars worth of crypto at the same time.
- Step 3: Realize your profit coming from a "successful" trade.
After paying a "symbolic" fee to the Liquidity providers, the whales enjoy their gains in a shallow LP.
IF Not Sustainable = Gamble in DeFi
Of course such manipulative actions may happen from time to time. However, there should not be a low-level exploit in the newly developing system that may directly affect the brand name of the service provider.
These actions cannot hit Ethereum and Bitcoin if the manipulators do not put $100m - $150m at risk. However, in a healthy system, $20 and $200k should not have the same amount of impact on the trading pairs. In such cases, the platforms become an open target.
For Decentralized Perpetual Markets,
the only liquidity of yours should be on the side of BTC and Ethereum before other pairs have high volume of liquidity to have a balance with Binance or other top-tier crypto exchanges' trading volume to secure your assets from exploits. Assuming that one of the low liquidity pools is targetted and manipulated, you would lose positions and your savings.
Have you ever used a decentralized perpetual market before?
Leave your opinions on them 👇