FTX Sam Bankman-Fried Response to Mango Markets Hack

In a tweet on Wednesday, FTX CEO Sam Bankman-Fried outlined the lessons learned from Tuesday’s Mango Markets hack.

“When it comes to oracles, you just have to make up your own damn mind,” said Bankman-Fried.

An Overview on Oracles

Using Oracle, we can use off-chain, real-world data on blockchain. Oracle’s smart contracts program triggers when a predetermined criteria is met. These programs are used in various areas, such as investing and trading digital assets, making predictions, and even taxing carbon emissions.

The Mango Markets Solana DeFi trading platform was hacked on Tuesday for $100 million.

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An attacker took advantage of a flaw in Mango Market’s structure to create the illusion of having more collateral than they had, drove the price of MNGO tokens up, then worked out a $100 million loan using data provided by the platform’s oracle.

The Lesson Learns from The Tragedy

“So, what went wrong?. Did the oracle f— up?,”  he asked.

His response was that it depends on what specifications the Oracle provided. “The oracle accurately reported the current price of MNGO. It’s just that the ‘current price’ wasn’t really anything close to the ‘fair price,” said him.

According to him, significant positions, especially in illiquid tokens, can have a profound impact.

A position like MNGO is large and illiquid enough that the risk engine software, which measures market risks and analyzes investments, requires full collateralisation.

A fully collateralized loan is one in which the borrower provides collateral throughout the loan, in this case cryptocurrency.

The initial collateral ratio at Mango Markets was 120%, and the maintenance collateral ratio was 110%; the user’s account would be liquidated if the collateral ratio dropped below 110%.

“So even before hitting position limits, the risk engine ensures that the collateral backing a position is sufficient,” he said. 

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“If an oracle reports ‘MNGO: $0.40,’ is it wrong?. It depends on what it’s promising. If it’s just promising to tell you what MNGO is currently trading at. And, for a brief period, on some exchanges, MNGO was in fact trading at $0.40. The oracle tells you everything and nothing—the history and current state of markets. It’s the risk engine’s job to consume that information, and decide what positions are safe,” Bankman-Fried said on his Twitter account. 

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Jamilatul Mahmudah

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