LA contract "pinning" controversy: Gate.io data source anomaly, but liquidated users can only bear the losses themselves?

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 significant losses for many users due to abnormal liquidations and even negative balances.

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 users' concerns, but the replies regarding the key causes of the incident and the compensation plan were largely consistent with the announcements, with no new details provided.

Why are Gate.io's responses 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 prices and on-chain prices for LA on other exchanges were mostly around 1 USDT.

This deviation from normal fluctuations caused a large number of users to be liquidated in a short time, with some accounts even experiencing negative balances. Crypto KOL @Elizabethofyou reported a loss of 20,000 USDT in this incident, while @BTCAlert stated a loss of 100,000 USDT and an additional debt of 120,000 USDT to the platform, 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 balances.

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 records totaling 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's CBO Kevin Lee further responded to the abnormal trading of the contract, stating that the cause of the incident was due to abnormal source data for the contract index and the cumulative effect of risk control mechanisms, 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 that it would only compensate for all negative balances. The total compensation amount, including allowing all users to retain their profits, is approximately 30 million US dollars.

However, many users remain unconvinced. 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 that led to price deviations from normal fluctuations. Why only compensate for negative balances and not for the losses of liquidated users?

Second, they find the attribution of the incident to abnormal data sources unconvincing. Some users suggested that 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, response speed, and attitude throughout the incident. For example, why were users denied the opportunity to speak during the AMA, and why was only an English AMA held?

What is Gate.io's basis for not compensating for liquidations under platform vulnerabilities?

In response to users' concerns regarding Gate.io's replies, ChainCatcher sought further clarification from Gate.io. Excluding some content that repeated the announcements, Gate.io's key responses are as follows:

1. 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 response was largely consistent with the announcement, no specific presentation is made.)

2. ChainCatcher: Why does Gate.io only compensate for negative balances and not for liquidations caused by the abnormal data source? What is the basis for this?

Gate.io: After technical inquiries, all LAUSDT contract trades were executed strictly according to the predetermined trading rules, with matching and liquidation mechanisms triggered normally based on index price rules, and no system anomalies were found. Therefore, the losses incurred from liquidations are not within the scope of the platform's compensation.

Additionally, losses from negative balances are typically borne by users, and other platforms in the industry follow similar rules. However, this 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 the 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 were users' requests to speak denied, and why was the reply to this tweet restricted? Is there consideration for holding a Chinese AMA in the future?

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.io users are widely distributed globally, we prioritized an English AMA to ensure that information could reach the majority of affected users as soon 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 not to open the microphone and reply permissions was primarily to maintain the rhythm of discussion and avoid escalating disputes, and there was no intention to evade communication. We will optimize the questioning mechanism in future arrangements to achieve more thorough 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 have not accepted this. Did you further verify and explain the abnormal feedback from users regarding their orders?

Gate.io: We take the individual feedback from users regarding order records very seriously. The technical team immediately conducted a thorough check, and no evidence of any orders being altered was found. The price fluctuations shown in some users' screenshots are actually normal results of the differences between transaction prices and marked prices during 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 the investigation and provide targeted feedback to each user who raises concerns.

5. ChainCatcher: Users affected by the $LA/USDT contract incident still have questions about Gate.io's compensation and responses. Will there be new responses and compensation plans?

Gate.io: Currently, there are no new unified compensation plans. If there are any other questions or special circumstances beyond the existing mechanisms, we welcome users to continue submitting their 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 controversies arising from the Gate.io LA contract anomaly, it reflects the technical and risk control challenges faced by CEX in high-leverage, high-risk contract trading. Additionally, the lack of transparency and insufficient protection of user rights in crisis management further leads to a trust crisis among users.

In a highly competitive market, CEX may only rebuild user trust by actively responding to user demands and addressing various shortcomings in risk control.