Author: momo, ChainCatcher
Recently, Gate.io has been embroiled in controversy due to the abnormal "spike" in the $LA/USDT contract. Multiple users have accused Gate.io of manipulation during the severe price fluctuations of the contract, leading to many users experiencing abnormal liquidations and even negative balances, resulting in significant losses.
Although Gate.io has responded regarding the cause of the incident and the compensation plan, community users seem unconvinced. ChainCatcher sought further responses from Gate.io regarding user concerns, but the replies on the key issues of the incident's cause and compensation plan were largely consistent with the announcements, with no new details provided.
Why is Gate.io's response not convincing to users?
On June 4 at 8 PM (UTC+8), Gate.io launched the $LA/USDT perpetual contract. About four minutes after the opening, the price of $LA surged from around 0.36 USDT to 27 USDT within seconds, then plummeted to around 0.2 USDT. During this time, the spot price of LA on other exchanges and the on-chain price mostly hovered around 1 USDT.
This deviation from normal fluctuations caused a large number of users to be liquidated in a short period, with some accounts even going negative. Crypto KOL @Elizabethofyou reported a loss of 20,000 USDT in this incident, while @BTCAlert stated a loss of 100,000 USDT and owed the platform 120,000 USDT, during which they were unable to increase or close their positions.
Gate.io subsequently delisted the contract and announced around 9:28 PM that it would compensate for the negative balance portion.
Users such as @BTCAlert and @Elizabethofyou reported that after Gate.io announced compensation for negative balances, the transaction records were altered. @Elizabethofyou claimed that three transaction orders with total amounts of 4994 USDT, 7999 USDT, and 13990 USDT were changed to 49.94 USDT, 79.99 USDT, and 139.34 USDT, respectively.
Some affected users thus questioned whether Gate.io was involved in "malicious manipulation" or if there were issues with the platform's risk control.
On June 5, Gate.io CBO Kevin Lee further responded to the abnormal trading of the contract, stating that the cause of the incident was the abnormal source data of the contract index and the cumulative effect of the risk control automatic mechanism, denying any internal operational behavior or intentional liquidation of users. Gate.io also denied any alteration of user trading data.
Regarding the compensation plan, Gate.io stated it would only compensate for all negative balance portions. The total compensation amount, including allowing all users to retain their profits, is approximately 30 million US dollars.
However, many users are not satisfied. First, they believe the compensation plan is unreasonable. Users argue that whether it is liquidation or negative balance, both are caused by issues on the platform leading to price deviations from normal fluctuations. Why only compensate for the negative balance and not for the losses of liquidated users?
Second, they find the attribution of the incident to abnormal data sources unconvincing. User @Ice_snow001 believes the platform should publicly disclose the composition of the index source and the abnormal logs to prove there was no internal manipulation.
Additionally, affected users expressed dissatisfaction with the platform's feedback and response speed and attitude throughout the incident. For example, why did they refuse to allow users to speak during the AMA and only hold an English AMA?
What is Gate.io's basis for not compensating liquidations under platform vulnerabilities?
In response to user concerns regarding Gate.io's replies, ChainCatcher sought further clarification from Gate.io, excluding some content that repeated the announcements. Key responses from Gate.io are as follows:
- ChainCatcher: Gate.io lacks explanation regarding the specifics of the abnormal index source, such as which data source was problematic? Why did the platform's risk control fail to detect the anomaly in advance? Is there any market manipulation involved? Can you provide further evidence and detailed explanations?
Gate.io did not provide further evidence or explanations. (Since the replies were largely consistent with the announcements, no specific presentation is made.)
2. ChainCatcher: Why does Gate.io only compensate for negative balances and not for liquidations caused by the data source anomaly? What is the basis for this?
Gate.io: After technical inquiry, all LAUSDT contract trades were executed strictly according to the predetermined trading rules, and the matching and liquidation mechanisms were triggered normally based on index price rules, with no system anomalies found. Therefore, the losses incurred from liquidations are not within the platform's compensation scope.
Additionally, negative balance losses are typically borne by users, and other platforms in the industry follow similar rules. However, this time, the compensation for negative balances is an additional subsidy voluntarily undertaken by the platform, reflecting its responsibility for the systemic liquidation results caused by extreme market conditions.
3. ChainCatcher: From feedback on platform X, many Chinese users suffered significant losses due to the $LA/USDT contract anomaly. Why did Gate.io choose to respond only in English for the AMA? Why did you refuse users' requests to speak and restrict replies to this tweet? Are you considering holding a Chinese AMA in response?
Gate.io: This AMA was held within 24 hours of the incident, with the primary goal of quickly addressing market concerns and promptly conveying the platform's position. Given that Gate users are widely distributed globally, we prioritized an English AMA to ensure information could reach the majority of affected users as quickly as possible. We also highly value the voices and demands of Chinese users and have strengthened communication with them through multiple channels such as internal messages, community interactions, and customer service.
If the community or users have further needs, we are willing to arrange a dedicated AMA for Chinese users in the near future to provide a more direct and open communication opportunity.
Our decision to not open the microphone and reply permissions was mainly to maintain the discussion pace and avoid escalating disputes, and there was no intention to evade communication. We will optimize the question mechanism in future arrangements to achieve more sufficient interaction and responses.
4. ChainCatcher: Users such as @Elizabethofyou and @BTCAlert reported that their orders were altered. You responded that there was no alteration, but users did not accept this. Did you further verify and explain the abnormal feedback on users' orders?
Gate.io: We take the individual user feedback regarding order record anomalies very seriously. The technical team immediately conducted a thorough check, and no evidence of any orders being manually altered has been found so far. The price fluctuations shown in some users' screenshots are actually normal results of the differences between transaction prices and marked prices under extreme market conditions.
We welcome users to provide more detailed original records (such as order IDs, transaction screenshots, etc.), and we will continue to cooperate with investigations and provide targeted feedback to each user who raises questions.
5. ChainCatcher: Users affected by the $LA/USDT contract incident still have questions about Gate.io's compensation and responses. Will you have new responses and compensation plans?
Gate.io: Currently, there are no new unified compensation plans. If there are other questions or special circumstances beyond the existing mechanisms, we welcome users to continue submitting information.
Trust Crisis After Frequent CEX Contract Incidents
Contracts are the core profit business of CEX. However, from the Bitget VOXEL contract incident to the controversy caused by the Gate.io LA contract anomaly, it reflects the technical and risk control challenges faced by CEX in high-leverage, high-risk contract trading. Moreover, the lack of transparency and insufficient protection of user rights in crisis management further leads to a trust crisis among users.
In a fiercely competitive market, CEX may only rebuild user trust by actively responding to user demands and addressing various shortcomings in risk control.
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