Trading with leverage is risky. While your potential gains are amplified, so are your losses. With high leverage, the market only needs to move a small amount in the wrong direction for your collateral to be completely wiped out.
When you’re trading on a DEX, where trades are transparent and visible to everyone, it’s particularly dangerous. Well-capitalized entities can profit by pushing the market towards prices where they know large liquidations will occur, a practice known as “stop hunting”. For example, they might drive the price down to the point where a leverage long is liquidated, so that the trader’s collateral is automatically sold to cover their loss.
This magnifies the price movement, forcing the market lower still. The attacker has already taken a short position and profits from the volatility.
This behavior is believed to be widespread on DeFi platforms, though it’s hard to prove. One trader, James Wynn, has recently become famous for being liquidated for over $100 million on the Hyperliquid DEX.
Wynn placed huge 40x leveraged bets on Bitcoin, but the market moved against him. He claims the “cabal” is after him, and that they were manipulating the market to liquidate his positions.
It’s possible he was just unlucky or got carried away. It’s also possible that this was a huge airdrop or engagement farming exercise, or that he secretly had opposite positions that canceled out his losses, as some analysts have speculated.
Still, the transparent nature of the blockchain means that order books are visible to all, and well-funded attackers can exploit this by pushing the market past key liquidation prices.
It was following this incident that Binance co-founder and former chairman, CZ, remarked on the need for a dark pool perp DEX.
COTI Fixes This
COTI uses garbled circuits to prevent attackers from exploiting transactions before they are confirmed on the blockchain. Garbled circuits are a fast, lightweight solution that process transactions in encrypted form, preserving end-to-end privacy. COTI can be used to achieve a combination of speed and scalability that is unique for Decentralized Confidential Computing (DeCC).
COTI enables confidential on-chain operations, including encrypted transfers and MEV-proof DeFi transactions, secure data storage, private multi-party interactions, and verifiable computations on encrypted data, all with optional disclosure for compliance! Build with COTI for everything from private DEX trading and RWAs to AI and ML operations with encrypted data sets.
Enjoy secure trading with no front-running on COTI with PriveX, the world’s first intent-based private Perp-DEX.
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