Lifinity DEX Loses $699,090 in Bot-Triggered Arbitrage Trade Exploit
Summary:
Lifinity, a Decentralized Exchange (DEX), experienced a substantial loss of $699,090 due to a bot's failed arbitrage trade on December 8, 2023. The unexpected system response led to an immediate decrease in trading prices and eventual funds drain. The Lifinity team is working on restoring liquidity, revising the protocol's code to eliminate future discrepancies, and recouping the lost funds.
In a recent cryptocurrency exploit, Lifinity, a Decentralized Exchange (DEX), experienced a substantial loss of $699,090 from its LFNTY-USDC pool on December 8. This unexpected loss was attributed to a bot attempting to negotiate an arbitrage trade, which resulted in a system failure, as revealed on the Lifinity Discord channel by an integral team member, Durden.
The bot had programmed a trading scheme, intending to exploit the price difference between the following trading pairs: USDC, xLFNTY, LFNTY, and ending with USDC. This incident was brought into attention by Shardo, another member of the Lifinity team, who noticed an anomaly in LFNTY's value and immediately alerted zoro, a developer associated with the platform. Initially, the evidence pointed towards a potential platform hack.
The bot had orchestrated an Immediate-or-Cancel (IOC) market order using Serum v3. This kind of trade order stipulates an instant execution at the prevailing market rate if filled, or else it is promptly cancelled. However, rather than resorting to the usual error message, the system returned an output of zero. Our pools accommodated this zero input and returned a zero output as well," Durden added.
After this transaction, the system updated the last transaction price to zero, setting the next initiating price to zero as well. Although the actual price remains unaffected due to the CP curve, the pool offered a significantly lower price, leading to a drain right after.
Functioning as an automated market maker (AMM), Lifinity v1 enables liquidity creation in trade pairs using advanced algorithms. The platform is primarily reliant on the constant product market maker (CPMM) model to balance out two token quantities in a liquidity pool, a function common in other DEX like Uniswap and Bancor. Lifinity v1, although not supporting the standard constant product (CP) curve used in conventional CPMMs, can mimic its operations.
But as the bug triggered a zero price return, the bot could take advantage of this discrepancy and drain the funds. Although the Lifinity team has yet to comment, a member of the community clarified via X (formerly Twitter) that this incident isn't an attack. Lifinity's team is reported to be working on restoring liquidity to the LFNTY-USDC pool, thoroughly reviewing the protocol's code, and devising strategies to recover the drained funds. Trade transactions resulting in zero amounts have been strictly prohibited since the incident.
Published At
12/9/2023 8:08:20 PM
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