If you’re an active member of the JetFuel ecosystem or like to keep tabs on some of the older players in the crypto space, you may have noticed that the FTS token from Fortress Protocol just rocketed up 100%!
Fortress is an algorithmic money market and synthetic stable coin protocol designed to bring secure and trustless credit and lending to users on
Binance Smart Chain (“BSC”). It’s been in existence for over a year and is one of the leading platforms within the JetFuel ecosystem.
This big pump happened right around 5:00 PM UTC on April 19th. The dramatic price jump occurred because an anonymous user made a large purchase and submitted a proposal on the protocol, looking to add a 70% collateral factor on FTS.
JetFuel has said they are vetoing the proposal but are open to a 10% collateral factor.
Here’s the reasoning for the veto from Flight Commander Miro, the founder of the JetFuel ecosystem:
“Unfortunately, we’ll need to veto the FIP7 asking to make FTS a collateral factor.”
The current price oracle for FTS relies heavily on Bitmart, and the book there is very thin. So an exploiter could pump FTS with almost 0 funds and drain all the assets from Fortress.”
“Although perhaps a small borrow against FTS, maybe 10%, would be suitable if we update the price oracles.”
Preventing an exploit like this is essential, as the industry has seen others, like Venus, fall prey to similar issues. Similarly, prices for the exploited tokens spiked, and users borrowed against them with the intent to never repay the loans once the tokens returned to the average price. In that situation, there was over $100 million of bad debt.
Here’s an example of how that could play out on Fortress: Someone could spend $20,000 and pump the price of FTS to $100. Then, they could borrow against their FTS holdings. Then, when FTS crashes, they get their $FTS liquidated but keep the borrowed assets for free.
This is the reason that the FIP7 proposal will be vetoed. As of the date of publication, you can still see the FIP7 proposal on the Fortress Protocol site: https://bsc.fortress.loans/vote/proposal/7
If you need an easier explanation on how this exploit would work, check out this example from Miro:
“Someone buys FTS with $1000 on Bitmart and the price goes from $0.08 to $5.00. The price is still $0.08 on PCS and JetSwap. The Coingecko price is around $4.50. The price oracle will report to Fortress the price of $4.50 since it’s a weighted average. They report CEX as a higher price than the DEX for some reason. Someone with FTS lent to Fortress can now use their $4.50 to borrow funds against the FTS. Let’s say they borrow USDC. When FTS comes back to normal, the FTS supplied as collateral is liquidated and the person keeps their USDC.”
You can follow the price changes of FTS over on DEX Screener: https://dexscreener.com/bsc/0xc69f2139a6ce6912703ac10e5e74ee26af1b4a7e