Liquidity Management

Summary

A critical security vulnerability has been identified in the GMXProxy contract that allows malicious actors to front-run order executions. The vulnerability stems from the contract's exposed market-based order execution mechanism, which lacks essential protections against MEV (Miner Extractable Value) bots. This vulnerability could result in significant financial losses for users and compromise the protocol's integrity.

Vulnerability Details

The GMXProxy contract executes orders based on market conditions through the createOrder and settle functions, which are vulnerable to front-running attacks. The contract's current implementation:

1. Exposed Order Execution - Orders are broadcasted to the public mempool before execution

• Market conditions and order parameters are visible to all network participants

• No protection mechanisms are implemented to prevent transaction reordering

2. Vulnerable Functions - createOrder: Exposes market-based order execution parameters

• settle: Reveals settlement intentions before execution

• afterOrderExecution: Processes callbacks without privacy guarantees

Root Cause

The vulnerability exists due to three primary factors:

1. Lack of Privacy Mechanisms - Tx data is publicly visible in the mempool

• No encryption or privacy protection for order details

2. Insecure Transaction Ordering

• Dependence on public mempool for tx processing

• No fairness guarantees in execution sequence

3. Missing Protection Layers - No private transaction relays

Impact

The vulnerability poses significant risks to the protocol:

1. Financial Risks - Potential losses

• Risk of forced liquidations and unfair profit extraction

2. Protocol Integrity - Compromise of fair market mechanisms

• Loss of user trust in the protocol

• Potential reputational damage

Tools Used

The vulnerability was identified through:

1. Static Analysis - Code review of GMXProxy.sol contract

• Analysis of transaction flow patterns

2. Protocol Analysis - Review of market-based execution mechanisms

• Analysis of transaction privacy features

• Evaluation of protection mechanisms

Mitigation

To address this vulnerability, implement the following measures:

1. Integrate Flashbots or similar private transaction relays

2. -Implement batch auctions for grouped executions
   3, -Implement off-chain order books for price discovery
   4, -Add multi-signature requirements for critical transactions