A savvy crypto trader used millions of dollars to manipulate the price of the AVAX Avalanche token on the GMX decentralized exchange (DEX) and made over half a million dollars from it by using a strategy that found a fundamental loophole.
The loophole is that GMX offers users trades with no slippage or difference between the expected price of the trade and the price at which the trade was made.
But all GMX price data comes from centralized exchanges such as Binance or FTX, which means that traders can buy large quantities of tokens, like AVAX in this case, without slippage, quickly raise prices on centralized exchanges by placing orders on them to buy and sell at a higher price.
It turned out that traders had exploited the GMX loophole about five times, generating between $500,000 and $700,000 in total profit.
Traders placed between $4 million and $5 million each time and received over $158,000 on their first trade, according to Lim.
Developer GMX said they are reviewing gaps and, in the meantime, are limiting open interest, or the number of outstanding futures contracts, to $2 million for AVAX on their exchange.