FTX chief executive Sam Bankman-Fried said that to withdraw more than $100 million from the Mango Markets DeFi protocol by the attacker was not caused by faulty price oracles, but by weaknesses in the risk-assessment system.
1) When it comes to oracles,
you just have to make up your own damn mind pic.twitter.com/7kZATSLpQM
— SBF (@SBF_FTX) October 12, 2022
“When it comes to oracles, you just have to make up your own damn mind,” he wrote.
An unidentified actor used a deposit of 5 million USDC to manipulate the price of the MNGO token by opening a large margin position in perpetual swaps. Due to low liquidity on the spot market, the asset price briefly jumped from $0.038 to $0.91. This allowed the attacker to inflate the MNGO collateral, borrow in several cryptocurrencies against it, and withdraw the funds.
“So something went wrong. Did the oracle mess up? I think, actually, no. Or, rather, it depends on what information was being speculated,” he said.
According to him, the instrument provides a “raw price feed,” and the rest depends on how the risk-engine operates. As an example, he cited the operation of a similar system on the FTX platform. It does not account for price increases of more than 20% over a five-minute period.
“In particular, while the indexed price [MNGO] on FTX rose by roughly 100% at its peak, on some exchanges the move (temporary) was +900%,” noted the head of FTX.
He also stressed that the exchange charges a higher margin on collateral the larger the position. If someone were to borrow $500 million in MNGO, the platform would require a fully funded collateral of 500% of the amount, Bankman-Fried said.
“The reason, essentially, is that large positions — especially in illiquid tokens — can have a significant impact on the price,” he added.
Returning to oracles, the FTX chief noted that the tool provides accurate information, but its processing and the assessment of position safety is the job of the risk engine. The mechanism should not operate in “manual mode,” but it needs to have a set of “conservative rules” to respond to large price movements, Bankman-Fried said.
In April 2022, Waves Platform CEO Alexander Ivanov accused Alameda Research of manipulating the WAVES token price. The founder of the company called the statements “a poorly cobbled conspiracy theory.”
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