Read time: 3 minutesSeptember 19, 2022

Mycelium’s response to GMX ‘exploit’

Mycelium has different risk parameters and fee structures to GMX, which mitigated the risk of exploit on Mycelium Perpetual SwapsMycelium’s response to GMX ‘exploit’

UPDATE

Since the original post, we have made changes to our fee structures, for the latest version of our fees and risk parameters: click here.

A note to our traders and LPs

Mycelium is aware of the price manipulation event on GMX, and can confirm that we were not exposed to the same exploit. Although Mycelium Perpetual Swaps is a fork of the GMX codebase, we have always been clear with our community: we updated the fees, revenue mechanisms, and markets for Mycelium Perpetual Swaps as a point of difference.

As a result, in this instance, the parameters Mycelium has implemented have ensured our LPs funds and the MLP pool is in healthy shape, and performing as it should. This post is dedicated to outlining what happened with GMX, and the measures Mycelium already has in place to prevent such an exploit.

GMX LP Losses

GMX allows users to trade at an oracle price with no price impact (execution price always stays the same), regardless of trade size. Essentially this assumes the fair price is the external CEX price (They do this by choosing from 3 CEXs, and then choosing the median price of the 3).

However, this assumes that CEX prices are adequately and perpetually liquid. With this assumption, GMX allowed traders to take up significant long and short positions on AVAX. This assumption was proven incorrect, given that the CEXs were not adequately and perpetually liquid, and the liquidity on CEXs became less than the liquidity that GMX was offering.

As such, a user was able to take an AVAX position on GMX’s platform (which sequentially is priced on the CEX liquidity), and then go and move the AVAX external liquidity at a lesser cost than the profits the user would receive from the GMX position. i.e. long on GMX, move up CEX market on Coinbase, exit GMX position and profit, short on GMX, move CEX market down on Coinbase, exit GMX position and profit. This process was done ~5 times last night on GMX’s platform with AVAX.

Mycelium’s Preventative Measures

Mycelium has always been aware that the risk that pricing according to CEX liquidity creates. As such, we have already implemented preventative measures to avoid this market manipulation occurring on our platform. The largest two were:

  1. Having a bid-ask spread which was inversely correlated to CEX liquidity depth;
  2. Having tight maxgloballongsize and maxgloballongsize parameters which prevent toxic order flow, and/or significantly reducing the profit of traders who are manipulating CEX prices.

We believe these parameters are strict enough to make it economically infeasible for CEX market manipulation, however, will continuously monitor going forward.

Steps going forward

In this instance, Mycelium was not exposed to the same exploit as GMX. Mycelium already had precautionary measures in place to protect our protocol and LPs from this sort of price manipulation. Mycelium will be introducing additional measures and parameters to maximise the health of our protocol liquidity, and the safety of our LPs funds.

In the short term, we are going to do the following things:

  • Increase the spread on some long-tail assets to reflect existing market conditions on CEX orderbooks;
  • Reduce the maximum notional value size for certain long-tail assets (FXS, CRV, and BAL) for the time being;
  • Update the bid-ask spread on these market more frequently so that it conservatively reflects CEX liquidity on said asset;
  • Decrease the chainlink price-binding threshold to 1.5%;
  • Maintain a conservative maxgloballongsize and maxgloballongsize for long-tail assets.

In the medium-long term, the solutions we will look to implement are as follows:

  • Introduce the bid-ask spread dynamic, and a function of CEX orderbook depth and/or;
  • Make the oracle pricing more robust via pricing it from more CEX venues (and potentially some algorithmic average of sample of CEX prices);
  • Make the max position size a function of CEX liquidity.

We will update our community of users with any further updates to our mechanism if we see fit to introduce them.

Never miss an update from Mycelium:

Follow us on Twitter.

Mycelium Docs
The home of Mycelium’s documentation

FAQs


All of Mycelium’s products are hosted on Ethereum Layer 2, Arbitrum. Users will need to bridge their assets to Arbitrum in order to trade Perpetual Swaps, Perpetual Pools, or Lend via MYC Lending.

Arbitrum is a secure, low-cost scaling solution that ensures our users can access low-cost derivatives in a safe, simple, and speedy environment.

If you need assistance bridging your assets, our team has prepared a guide here.


Mycelium Perpetual Swaps is a decentralised derivative platform, which allows users to open leveraged long and/or short positions on crypto-assets.

Perpetual Swaps are similar to a Future where traders can take a position based on the future price of an asset, the key difference being Perpetual Swaps mechanisms allows traders to take this position at an unspecified point in the future, making it ‘perpetual’ or unable to expire. Mycelium Perpetual Swaps allows traders to take a position on digital assets such as Bitcoin and Ethereum.


Mycelium Perpetual Swaps doesn’t use an order book model for leveraged trading. Rather, all traders trade against the Mycelium Liquidity Pool (MLP). The MLP is a basket of blue-chip assets and stablecoins pooled together (ETH, BTC, LINK, UNI, BAL, CRV, FXS, FRAX, USDT, DAI, USDC) which acts as a global AMM for leveraged trading. Liquidity providers can deposit any whitelisted asset into the MLP pool in return for MLP tokens, which represent the LPs share in the diversified liquidity pool. By acting as a universal counterparty (AMM) to traders, meaning that it agrees to be the counterparty to any long or short trade at the given price, for an asset it holds, until it runs out of said asset.


In exchange for providing liquidity to the Mycelium Liquidity Pool (MLP), liquidity providers earn rewards. Primarily, MLP holders earn 70% of fees generated on the platform, which is distributed fortnightly in ETH and or esMYC.

  • ETH Rewards: The MLP pool earns 70% of fees generated from swaps and leveraged trading. These fees are converted to ETH, before being continuously distributed to MLP stakers.
  • Escrowed MYC Rewards: These are rewards in the form of a token which has the right to vest into $MYC when staked in the esMYC vesting vault.

The trading fees that make up this revenue are entry/exit fees, borrowing fees, and or a spot trading fees. For a full overview of the trading fees, visit this page.

Additionally, LPs earn rewards from a small bid/ask spread that is charged on long-tail assets (there is no spread on BTC or ETH). These rewards accrue as MLP, shown on our front-end as Market Making APR. These rewards can be redeemed at any time, in any asset form within the MLP basket of assets.


Yes. Perpetual Pools are a marketplace for leveraged tokens, while perpetual swaps simulate spot trading with margin. They are both derivatives, but Perpetual Pool tokens act most like a leveraged ETF, where positions are transferable.


Mycelium Staking is a program established by Mycelium to give utility to our governance token. MYC holders can stake their $MYC to earn ETH rewards. MYC Stakers effectively enter a loan agreement with the Mycelium Treasury to lend their MYC. The Loan Cycles occur fortnightly, meaning deposits and withdrawals are processed at the beginning/end of each cycle. Stakers can request withdrawals throughout the cycle, noting the withdrawal will be processed and distributed at the end of the cycle.


Don’t worry, you are earning rewards! The rewards only show at the end of the 14 day loan cycle.


The way the Perpetual Pool market calculates how much money to move from the losers to the winners prevents the loser from ever losing 100% of their money. The pool does this by, in extreme scenarios, sacrificing some of the gains of the winners in order to protect the losers from losing everything. This is why we say Perpetual Pool positions cannot be liquidated.

However; this does not mean you cannot lose money by trading with Perpetual Pools.


In August 2022, TracerDAO voted to transition and rebrand to core service provider Mycelium, and $MYC as the native token. All TCR holders are entitled to change their token 1:1 to MYC via this site: https://migrate.mycelium.xyz/

The majority of TCR holders have migrated to MYC, but the site will remain active for approx. 3 years to ensure all TCR holders have the opportunity to migrate.


When a trader enters a short position, the liquidity pool will fully collateralise the position with stablecoins. For short positions, the liquidity pool is essentially a market maker that takes the opposite side of the position, increasing the long exposure of the pool. If the price of the base asset depreciates, the trader receives stablecoins from the liquidity pool. If the price of the base asset appreciates, the liquidity pool receives a portion of the user’s margin as compensation.

At close, the trader will only have to return the USD value of the initial notional value to the liquidity pool. Thus, the trader is effectively entitled to the inverse of the future “PnL” (Profit and Loss) of an asset.


With Perpetual Pools v2, users can deposit any sort of collateral for maximal optionality. Additionally, there is no minimum-commit size.


On Mycelium Perpetual Swaps traders can access up to 30x Leverage. On Mycelium Perpetual Pools traders can access up to 10x Leverage.

Swaps logo

More Leverage. Less Overhead