wstETH-WETH market temporarily disabled

Risk
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An unusually high number of swaps has recently been observed through the wstETH-WETH GMX V2 pool. The change in GM token price for this pool also does not exactly match expectations.

Due to these observations, the wstETH-WETH GMX V2 market has been temporarily disabled as a precaution. Contributors are investigating the situation in detail with Chainlink, the Oracle data provider, and Chaos Labs, the security and risk assessment partner.

In addition, swap, deposit and withdrawal fees for the wstETH-USDe pool have been increased to 0.5% as a precautionary measure.

Updates will be shared when more information is available. Please stay tuned.

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Overview

Chaos Labs observed unusual activity in the wstETH-WETH GMX V2 pool.

Our analysis has revealed significant discrepancies between the Chainlink wstETH/wETH Oracle price reports and the UNI V3 price of wETH/wstETH.

These discrepancies were observed consistently before, during, and after extreme market volatility on 2024/08/05. Major price discrepancies between Chainlink Oracle and Uniswap V3 spot prices are not isolated incidents. We observed extreme gaps during last week’s market turbulence, but critically, they persist even in calm market conditions.

Chainlink is actively investigating the root cause.

wstETH/WETH Price Deviation: Chainlink Oracle vs. Uniswap V3

Price discrepancies between Chainlink Oracle reports and Uniswap V3 spot prices for wstETH/WETH pair. Note that deviations frequently exceed 0.75% even during normal market conditions, with more extreme divergences observed during the heightened volatility on 08/05
Price discrepancies between Chainlink Oracle reports and Uniswap V3 spot prices for wstETH/WETH pair. Note that deviations frequently exceed 0.75% even during normal market conditions, with more extreme divergences observed during the heightened volatility on 08/051510×933 95.2 KB

The observed price discrepancies are significant, often exceeding 0.75% during periods of normal market conditions. During the extreme volatility on 08/05, these deviations were even more pronounced, as illustrated in the data below.

Magnitude of price discrepancies between Chainlink Oracle and Uniswap V3 spot price for wstETH/WETH. Note the persistent deviations, including significant discrepancies during periods of normal market activity.
Magnitude of price discrepancies between Chainlink Oracle and Uniswap V3 spot price for wstETH/WETH. Note the persistent deviations, including significant discrepancies during periods of normal market activity.1510×933 83.9 KB

Temporary Risk Mitigation Measures

These actions are designed to provide immediate risk mitigation. However, they are not intended to be permanent.

We will reassess and adjust the fees once the underlying issue is resolved and Chainlink’s Oracle precision is restored to expected levels.

Meanwhile, Chaos Labs will work closely with GMX and Chainlink to develop a more resilient oracle solution.

To address Oracle price discrepancies, we recommend the following temporary measures:

  1. Re-enabling the wstETH/wETH market
  2. Increasing the swap fee to 1% for both wstETH/wETH and wstETH/USDe pairs

Recommendations

wsETH/wETH Pool:

  • Re-enable pool
  • Update swap fee to 1%

wstETH/USDe Pool:

  • Update swap fee to 1%
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Hello! I ran into a problem. As a result of disabling wstETH-WETH GMX V2 pool, GM token wstETH-WETH ignored the market growth. That is, the price of ETH in it was, as it were, frozen. After the renewal of wstETH-WETH GMX V2 pool, the cost of GM token was the same at which I bought it (before the increase in the price of ETH) a few days before the pool is disabled.

Please explain how this can be? After all, these tokens are completely consisted of volatile (in addition correlated) assets. Why, after re-enabling the pool, the price of wstETH-WETH did not increase with ETH?

The quantity of GM tokens buyed remains the same, but their cost did not increase in proportion to the prices of ETH.

08/08/2024 I bought 911.38 GM tokens to my main account.

08/10/2024 I bought 1,125.67 GM tokens for my additional account. (2 accounts for convenience, because I borrowed ETH on 2 lending markets)

Then the wstETH-WETH GMX V2 pool was disabled. A few days later the pool was enabled. During this time, the price of ETH has increased. However, I found that the price of tokens completely ignored the increase in the price of ETH.

As a result, the cost of 911.38 GM tokens, which I bought on 08/08/2024 on my main account, was reduced by about 9%.

And the price of 1,125.67 GM tokens buyed on 08/10/2024 is reduced, at least 2%.

At the moment, nothing has changed. The price of GM token remains underestimated in the same proportions in relation to ETH.

In addition, the situation is worsening that firstly, the APY has fallen very much, and secondly, the fees for the sale of tokens increased to 1%.

Please tell me, do you know anything about this problem? After all, it is obvious that it arose not only for me alone. Do you plan to make any recalculation for wstETH-WETH liquidity providers? In the end, these ETHs could not evaporate.

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The contributors are investigating the pool issue, how it affected users, and what can be done to address it and avoid this issue in the future :handshake:

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Users affected by the arbitrage of the wstETH-WETH pool have been reimbursed with WETH for the impacted value. You can find the transaction here:

Currently, the pool has a 1% withdrawal fee in place to prevent any further arbitrage. GMX is working with its oracle and risk management partners to bring this fee back to normal as soon as possible.

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Thank you very much! Still, justice remained in this world. :slightly_smiling_face:

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