FTX founder SBF took to social media to analyze the lessons of the Mango Markets hack time. He said: “The real question is what is the specification of the oracle machine, which accurately reports the current price of the MNGO, it’s just that the current price is not close to the fair price. Some positions, such as MNGOs, are large and illiquid, So much so that the risk engine (software that provides market risk measurement and investment analysis) forces positions to be fully collateralized.”
Fully collateralized means that the borrower provides collateral throughout the loan process. In this case, the collateral is cryptocurrency.
Mango Markets requires an initial collateral ratio of 120% and a maintenance collateral ratio of 110%. If the user’s collateralization ratio falls below 110%, the account will be liquidated, and the Mango Market attacker exploits the vulnerability to simulate having sufficient collateral.
SBF added: “If an oracle reports ‘MNGO: $0.40, is it wrong? If it just promises to tell you the price at which the MNGO is currently trading, and, for a short period of time, on some exchanges, the MNGO actually Traded at $0.40. The problem is using raw oracle prices. Oracles sometimes tell you everything, sometimes they don’t represent anything, they just reflect the history and the current state of the market, and it’s the risk engine’s job to take that information and decide which ones Positions are safe, and sometimes the risk engine can’t just regurgitate what the oracle says, but do its own analysis.”