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A disgruntled attacker has literally squeezed all liquidity out of decentralized crypto exchange Mango Markets and is apparently holding $100 million worth of tokens for ransom to force the organization to use the assets in its treasury to fund bad debt, taken to rescue a major investor earlier this year.
Trading halted on Wednesday and the governance page of the decentralized autonomous organization allegedly posted a proposal from the attacker offering to return the funds in exchange for an unspecified bounty. Additional terms include using Mango’s $70 million treasury to pay off the project’s bad debt and promising no criminal investigation and freezing funds once the tokens are returned.
The attacker also appears to have used 32.9 million Mango tokens, about a third of the voting power needed to pass the proposal, to affect the outcome of the vote, which will end early Saturday. Less than 22,000 votes against the proposal were registered.
Mango said on Twitter that it “will ensure that the depositors of the protocol get well,” but didn’t respond to Forbes’ request for comment on how that might happen.
The heist, which involved rigging Mango’s coin of the same name (MNGO), occurred around 6 p.m. New York time on Tuesday. The attacker funded two accounts on the platform with the dollar-pegged USD coin, according to Mango, and took large positions in perpetual futures on the coin by selling from one account and buying in another at a price above the market rate. This caused the token to surge 10x on some decentralized exchanges that automatically responded to price changes originating from Mango via smart contracts.
The attacker then used the unrealized profit to borrow and withdraw a range of tokens from Mango, including around $100 million worth of Bitcoin, Tether, Solana, USD-Coin and mSOL.
“It looks like this has effectively wiped out all available liquidity on Mango,” tweeted Joshua Lim, head of derivatives at crypto trading firm Genesis. Decentralized exchanges like Mango rely on liquidity pools made up of different cryptocurrencies to enable peer-to-peer trading. In return for providing liquidity, lenders who fund the pools receive a percentage of transaction fees paid by platform users.
The bad debts the hacker was referring to likely stem from an incident in June, when Mango and rival Solana-based lending platform Solend agreed to share the obligations of an unidentified Solend user whose positions grew so large that they were classified as “too big to fail” were considered. . The account holder has borrowed more than $100 million worth of USD coins and Tether backed by the Solana token. As Solana’s price fell along with most of the crypto market, the potential liquidation of the loan as a result of margin margin appeared to pose an existential threat to Solend. Eventually, the user transferred 25 million USDCUSDC to Mango to ease the pressure on Solend.
In response to the attacker’s post, Mango co-founder Daffy Durairaj offered to fulfill at least part of the attacker’s demands, including a “healthy win” and that person’s release from allegations of wrongdoing. Durairaj also agreed that all mango pickles should be made “whole.”
Whether the results of the vote on the attacker’s proposal will be considered legitimate remains to be seen. Mango token is down 32% in the last 24 hours and is trading around 3 cents. He ended 2021 at just under 21 cents.
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