Last Friday, the recent GMX V1 exploit culminated in a positive resolution after the person behind the incident transformed into a white-hat hacker. The perpetual and spot crypto exchange GMX suffered a loss of over $40 million on Wednesday due to an attacker exploiting a loophole in the protocol’s inaugural version on Arbitrum.

A number of online publications reported that a flaw in GMX V1’s vault contract permitted the attacker to tamper with the GLP token price via the system’s computations. As explained by blockchain security company SlowMist, the attack originated from a design deficiency in GMX v1, which allowed short position operations to instantaneously modify the global short average prices (globalShortAveragePrices). This directly influenced the calculation of Assets Under Management (AUM), thereby enabling manipulation of GLP token pricing.

Through a reentrancy attack, the hacker successfully established substantial short positions to manipulate the global average prices, artificially boosting GLP prices within a single transaction and profiting through redemption operations. Consequently, approximately $42 million worth of assets, including Legacy Frax Dollar (FRAX), wrapped bitcoin (WBTC), wrapped ETH (WETH), and other tokens, were moved from the GLP pool to an anonymous wallet.

The perpetual crypto exchange suspended GMX V1’s trading and GLP’s minting and redeeming on both Arbitrum and Avalanche to avert another assault and safeguard users’ resources. They assured that the exploit was confined to GMX’s V1 and its GLP pool. GMX V2, its markets, liquidity pools, and the GMX token were unaffected and remained secure.

Post the incident, GMX offered a $5 million white-hat bounty to the attacker on-chain and on X, acknowledging their evident skills. The GMX team explained that returning the assets within the next 48 hours and accepting the bounty would enable the hacker to “spend the funds freely” rather than risking accessing them. They also promised not to initiate any legal action and to assist the exploiter in providing proof of source for the funds whenever necessary.

The exploiter responded positively in an on-chain message, accepting the reward and initiating the return process. Lookonchain reported that they initially returned $10.49 million worth of FRAX on Friday morning. Subsequently, another $32 million worth of assets were converted into 11,700 ETH, now valued at $35 million following the surge in the altcoin’s price to $2,990.

Later, the hacker returned 10,000 ETH, worth $30 million, retaining only 1,700 ETH, valued at $5.2 million, as the bounty. GMX confirmed that the funds had been securely returned and thanked the white-hat hacker for their actions, adding a positive spin to the incident. They also notified users that “contributors are working on a proposed distribution plan for presentation to the GMX DAO and will share more information shortly.”

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Ethereum’s price trajectory is mirroring Bitcoin’s ascend, with a gain of 10.3% over the past week. This was spurred by BlackRock’s Bitcoin spot ETF filing with the US Securities and Exchange Commission, which took the market by surprise and invigorated altcoins. However, for a particular trader on the decentralized perpetual exchange GMX, the situation is more of a bad dream than good news.

The biggest short seller on GMX is employing a 6.64x leverage to short Ethereum (ETH) at an entry price of $1,703.97. An amount of $1.8 million of collateral is at risk for this anonymous trader. At the moment, the position has plummeted by 77.4%, equating to a loss of around $1.416 million.

As it currently stands, the trader’s short position, worth approximately $12 million in ETH, will face liquidation when the Ethereum price hits $1,945.18. As Chinese journalist Colin Wu reports, the account holder could be the owner of rebelvarma.lens.

How Can the Short Seller Evade Liquidation?

Analyst An Ape’s Prologue speculates that the ETH short seller may decide to double down on his bet. The general consensus is that the short position will face liquidation when ETH reaches $1945. However, there are limit orders which could add a total of $149,000 to the trader’s collateral within the $1935 and $1945 price range. If triggered, this could push the liquidation price to roughly $1967.

Additionally, the trader has about $224,000 worth of other assets diversified across Arbitrum and the Binance Smart Chain: $90,000 in USDT, $51,000 in USDC, $64,000 in WBTC, and $21,500 in AAVE.

It has been noted that the trader has previously evaded liquidation risk by moving tokens from other chains to Arbitrum as collateral. If ETH prices increase, it is likely the trader will follow a similar strategy. The $224k in available assets could be used to bolster the collateral in this scenario.

Will Ethereum Break the $2,000 Barrier?

Speculations are rife in the crypto sphere that the GMX short-seller’s liquidation could potentially trigger an ETH breakout above $2,000. The 1-hour price chart of Ether indicates that the price is currently lodged within the price range between $1,964 and $1,930. A significant movement to the upside or downside could dictate the next shift.

The 1-day chart shows that breaking out above $1,930 does not necessarily guarantee a push above $2,000. The 78.6% Fibonacci retracement level is situated at $1,975, where substantial resistance is expected. Ethereum bulls can only target the psychological $2,000 level if they manage to break past this price level.

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