ROGUE BOT: Australian exchange loses, then recovers, $1 billion in crypto

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Kain Warwick, Founder of Synthetix (CEO Sleepout)
Kain Warwick, Founder of Synthetix (CEO Sleepout)

An Australian exchange has lost more than $1 billion worth of crypto in an hour – but the owner of a trading bot kindly gave it all back.

Australia’s biggest ever ICO – the crypto exchange Synthetix – lost, then recovered, a billion dollars worth of synthetic tokens due to an Oracle pricing error yesterday.

The platform has since resumed trading after the incident in which 37 million synthetic Korean Won was lost in several trades that netted a bot owner profits of 1000x.

The error was caused by an API reporting the price of the Korean Won at 1000 times the actual price, after the exchange’s price oracle got confused by an “earlier unrelated outage which had not been caught by our exception reporting.”

CEO Kain Warwick responds to billion dollar loss

“There are currently a number of trading bots actively trading on Synthetix.exchange using different strategies, one of these bots was able to detect this price error and exploit it to trade into and out of sKRW during the window where the API was incorrectly reporting the price,” said founder Kain Warwick.

Warwick, who is also the CEO and Co-founder of Blueshyft, added, “This resulted in several trades with profits of 1000x, resulting in over $1b in profit in less than an hour.”

Blueshyft allows customers to purchase cryptocurrencies on exchanges like CoinSpot and BinanceLite over the counter at over 1300 retailers across Australia.

This tale has a happy ending

Fortunately, the story has a happy ending:

“No funds were lost, the owner of the bot who exploited the issue agreed to reverse the trades,” Warwick said.

“He was unaware of the issue (his bot was fully automated) until after the news broke. He reached out on Reddit once he knew and we negotiated a bounty for reversing the trades.

“His goal was to build a profitable bot and he wanted to make sure the profit he had made up to that point, about 30k, was safe. So we paid him a bounty for reversing the trade, since his bot was the only one that was able to exploit the oracle defect.”

crypto bull run
Kain Warwick, the founder of Synthetix.io, looking dynamic.

The billion dollars of crypto probably couldn’t be sold anyway…

Although it sounds bad, it’d be almost impossible to sell 37 million sKRW as Synthetix is pretty much the only place that trades in the token.

For the uninitiated, Synthetix is an Ethereum dApp platform trading in ‘synthetic’ tokens – which are tied to the price of a crypto asset but don’t actually convey ownership.

The prices for the various synthetic assets are taken from an oracle, which is clearly a point of weakness when the oracle gets it wrong.

“We are very conscious of the challenges in using oracles for price feeds and we will continue to improve this and all other aspects of the Synthetix system.

“Chainlink is a key partner in our move towards a more robust and decentralised oracle, and we look forward to working closely with their team to improve our Oracle,” Warwick said.

Platform still ironing out the bugs

The platform (formerly known as Havven) is still essentially in beta while it irons out the bugs in its incredibly complex system.

Despite negative coverage in CoinTelegraph, CoinDesk, and The Block, the reaction among members of its Discord community was fairly muted – with many praising the transparent approach of Warwick and the team to identifying and rectifying the problem.

The general consensus was that any publicity was good publicity for the platform.

Synthetix critic Teo Leibowitz from The Block – who earlier this month published an article suggesting the platform’s design exposed holders to significant risk – said the very deficiencies he’d identified had saved holders for loss. (Warwick’s rebuttal is here).

“The irony of this situation is that the currently suboptimal design of the Synthetix platform makes it actually very difficult to realize gains from this kind of attack,” said Leibowitz.