$43 Million in Minutes: How Two High-Frequency Traders Exploited an Exchange Loophole

A recent report by Wu Blockchain has shed light on a massive cryptocurrency payout that has landed a high-frequency trader (HFT) in hot water with Bitget.

The market maker, who trades under the pseudonym ‘qntxxx,’ claims to have trousered $43 million through standard trading practices, which the exchange deems “illicit.”

According to Bitget, a professional arbitrage syndicate exploited the exchange to reap over $20 million in profits.

The two parties are now locked in a legal battle, with Bitget planning to airdrop all recovered funds back to Bitget users.

What Happened?

The story began with the unusual price surge and subsequent chaos surrounding the cryptocurrency VOXEL on the Bitget exchange.

As Bitget took action to restrict trading in the token and announced a rollback of user funds due to a "bug," a market maker known as qntxxx reached out to Wu Blockchain to share their perspective.

The two-person high-frequency trading team began their journey in early 2022, rapidly pivoting to smaller exchanges like Bitget and Gate after kicking off their journey on Binance.

They transitioned to becoming both spot and contract market makers on Bitget.

According to qntxxx, the opportunity arose during a period of low market volatility as they devised a strategy for placing orders on multiple trading pairs.

Significant price movements would increase their position size and lead to the deployment of more sub-accounts.

Observing high trading volume in VOXEL, they initially engaged with the token. As profits began to scale dramatically, they ramped up their operation to approximately 100 sub-accounts.

"I can draw a parallel to the LUNA incident, where we were running hundreds of accounts simultaneously amidst chaotic price action," added qntxxx.

The chaotic candlestick movements in VOXEL's order book played into their high-frequency trading strategy, ultimately leading to the $43 million profit, which they claim was taxed accordingly.

On the topic of Bitget's claim of $20 million in withdrawals by flagged accounts, qntxxx stated they withdrew around $10 million, while Binance froze several hundred thousand from their accounts.

They acknowledged the possibility of other market makers being involved but highlighted the short trading window.

Exploit or Fair Trade?

Crucially, qntxxx maintained they did not exploit any vulnerabilities or attack Bitget's servers.

Instead, they asserted their profits were a result of “fair trading practices” through interaction with the order book, rendering the $43 million rightfully theirs.

In contrast, Bitget identified eight accounts belonging to a “professional arbitrage syndicate” as the primary instigators of the VOXEL incident.

The exchange is now preparing to return the illicitly gained funds, estimated at over $20 million, to Bitget users through an airdrop.

For retail users who traded VOXEL between 16:00 and 16:30 on April 20th and have already withdrawn their funds (estimated at $19 million), Bitget stated their accounts were restored by Wednesday, and no further action will be taken against them.

Regarding the total amount withdrawn before risk controls were triggered, Bitget reports it to be $38.31 million in “abnormal profits.” However, Bitget will not be pursuing other already-withdrawn funds.

The Payback

Of the eight flagged accounts, four are on Binance, two on Huobi, and two on Bitget, with the latter two still pending.

According to Bitget, the majority of the illicitly gained funds were withdrawn to Binance.

In a statement to Block email, a Binance spokesperson confirmed they have been contacted by Bitget regarding several user accounts and are cooperating with the exchange in accordance with applicable laws and regulations.

The email from Bitget to Binance reads: "Dear Binance Team, greetings from Bitget!

"Recently, our platform encountered a malicious arbitrage activity that resulted in significant losses for Bitget and impacted a portion of Bitget users’ trades. After a thorough investigation, we have identified the main beneficiary accounts for the illicit gains. Among them, several accounts on your platform are linked to this activity.

"We are writing to request your cooperation in recovering the illicitly acquired funds from the Binance accounts and returning them to Bitget for subsequent disbursement to affected Bitget users.

"We understand the importance of user privacy and will only disclose the necessary information to facilitate the efficient recovery of the funds. We are prepared to discuss this matter further at your convenience."

A Bitget spokesperson also confirmed they are in contact with other exchanges regarding the recovery of illicitly gained funds.

What About the HFT Trader?

The high-frequency trader, known as qntxxx, is now planning to sue Bitget’s Singapore entity for “unauthorized fund seizures.”

The HFT, who claims to be