DYdX Gets in Conversations With Offender and Authorities Regarding Recent Attack on Market Manipulation

Competitors of dYdX have criticized its “centralized” response to market manipulation efforts.

After identifying the individual responsible for the purported market manipulation assaults that occurred in Q4 2023, DYdX, a prominent decentralized perpetuals exchange, revealed that it has contacted criminal authorities.

In a postmortem of the assaults published on January 3, dYdX said that it is collaborating with the perpetrator and is providing assistance to the law enforcement agencies conducting the investigation.

“The identity of the attacker has been uncovered and we are in contract with them, dYdX said, praising the team’s and the community’s efforts as well as those of forensics contractors. DYdX is investigating all of its legal options while also cooperating with law authorities. DYdX will pursue whatever legal action it thinks is necessary under the current circumstances.”

The essay goes on to explain how the dYdX protocol has safeguards in place to prevent such accidents in the future. Some of these changes include raising the margin requirements for “less-liquid” markets, making it more difficult to withdraw unrealized gains due to “abnormal activity” on the platform, and increasing the amount of time it takes to monitor the open interest of active positions.

“Other attackers will be unable to use this strategy to take leveraged positions, manipulate spot prices, withdraw against mark-to-market gains, and repeat,” dYdX said.

On the other side, dYdX’s competitors have criticized the project’s centralization strategies and how it has handled the situation.

One of the leading decentralized derivatives protocols’ councilors, Adam Cochran, blasted dYdX’s actions in reaction to the instances.

DYdX has closed the transactions of winning traders and threatened to sue them for losses caused by incorrect parameters, according to Cochran. This happened in the previous 24 hours. “Many jurisdictions don’t see it as an issue if you simply acquire an illiquid asset. In this case, the system is to blame.”

A French court recently dropped all charges against the hacker responsible for the Platypus Finance vulnerability because the court found that the hacker had followed the documented instructions and interacted with publicly accessible smart contracts.

Kain Warwick, inventor of Synthetix, tweeted, “It’s pretty impressive that [dYdX] are able to replicate all of these centralized exchange strategies while being decentralized.”

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