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The community is discussing a potential AVAX-USD price manipulation attack on AAVE, similar to a recent incident on GMX. While the attack is currently unprofitable, risk managers are advised to monitor slippage levels of collateral tokens and LTVs to prevent malicious attacks, with further research needed, particularly regarding the choice of asset.
The community has been actively discussing a potential AVAX-USD price manipulation attack on AAVE, similar to a recent incident on GMX, a perpetual swap DEX on Arbitrum. The attack involves artificially inflating the AVAX price, depositing the token into Aave, and borrowing against this inflated collateral value. NonstopTheo from the Risk DAO has provided a detailed analysis of this potential threat, concluding that while the attack is not currently profitable, risk managers of lending protocols should monitor slippage levels of collateral tokens and associated LTVs to prevent malicious attacks1.
The discussion also included a review of a similar attack that occurred in May 2021 with the Venus Protocol's governance token, which resulted in the protocol's bankruptcy1. NonstopTheo modeled three scenarios of price manipulation: super-linear, linear, and sub-linear, using variables such as slippage rate, trade quantity, and current and target prices. He concluded that the probability of a replay of the GMX attack on Aave is unlikely given the current risk parameters, as the trade is not profitable enough and would require significant investment1.
Pauljlei from Gauntlet acknowledged the analysis and assured the community that they are monitoring the situation. He also suggested adding the market impact decay to the model, stating that the attack strategy would be more profitable for long-tail assets versus AVAX under current conditions2. NonstopTheo agreed on the need for further research, particularly regarding the choice of asset3. OneTrueKirk referenced a similar risk identified by Volt Protocol co-founder Elliot Friedman during a security review of Compound Finance, suggesting a similar analysis for tokens with the highest borrowable liquidity: market depth ratio, considering borrowable quantities on both Aave and Compound4. The community continues to monitor the situation and conduct further research to mitigate potential risks.
Posted a year ago
Last reply a year ago
Summary updated 2 months ago
Last updated 08/12 04:39