Just weeks after a typo in the platform’s code base, Hegic has shutdown again after a trader exploited a hole in the system’s design.
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Hegic Options’ revival was short-lived after the protocol succumbed to a design flaw. Andrew Kang revealed that there was a defect in Hegic’s design that allowed older liquidity providers to pocket a profit without fulfilling their obligations.
DeFi Project Hegic Suffers Poor Game Theory
Hegic Options was forced offline after a trader took advantage of a hole in the network’s design. The platform’s liquidity pool was designed in a way that gave precedence to older liquidity providers.
Liquidity providers that sell options contracts (short the options) would receive their premium and be free to exit the pool after collecting it. The problem was that they weren’t forced to honor the obligation an option seller is supposed to.
Simply put, this means that a trader could receive the benefit of selling an option contract without bearing the liability if they were caught on the wrong side of the trade.
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Author: Ashwath Balakrishnan