Mycelium liquidity pool exploited by arbitrage bot that abused price discrepancy issue

By Selena 01/8/23 12:35 AM

An glitch with the pricing feed caused losses in one of Mycelium’s liquidity pools, a multi-product Web3 ecosystem. The Binance API module also restricted the protocol’s IP address.

Binance started IP blocking the US in late Dec, but was not widely communicated https://t.co/1g4K0u913D

Since the collapse of FTX and changes implemented for new data providers, the fast price feeds were now relying on only two price feeds, from Coinbase & Bitfinex.

2/7

— Mycelium (@mycelium_xyz) January 7, 2023

According to a statement from the Mycelium team, an arbitrage bot exploited the platform today, January 7, 2023. The bot began exploiting the platform with a lot of liquidity when it saw a mismatch in the Ether (ETH) price that was too high spread.

The Bitfinex API began broadcasting extremely erratic rates for the ETH/USDT pair at around 02:45 a.m. AEST is to blame for the mismatch. The other price feed supplier, Binance, was offline because it had barred Mycelium’s use of an IP associated with the United States. This prevented the system from using an independent price feed to rebalance the price.

Due to the Binance downtime, which “was not widely reported,” Mycelium exclusively used data from Bitfinex and Coinbase, according to the Mycelium staff. When the issue was discovered, the team immediately halted trading and began an internal inquiry. According to the postmortem, the pool was closed for a total of 2.5 hours.

Experts in Mycelium said that the problems “result in MLP degradation of anywhere between 4-6%.” The losses may be severe given that the 24-hour trading volume for this pool topped $218 million in equivalents. The protocol agreed to incorporate tighter feed monitoring, improved alarms, and quicker communication to avoid repeating similar occurrences. Yesterday, Balancer (BAL) DeFi requested money withdrawals from its customers from five pools across four blockchains.

The potential for a protocol hack does not appear to impact Balancer’s native token, BAL. At the time of publication, BAL has risen 0.62% to $5.35, according to data from CoinMarketCap. However, throughout that time, its trading volume decreased by about 7%.

Source: CoinMarketCap

According to Defillama data, the Balancer DEX has had a trading volume of approximately $350 million so far in January, with $92.21 million in the last 24 hours alone. TVL for the protocol is $1.5 billion.

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