In an on-chain deal, a “desperate” cryptocurrency investor paid well over $2 million to switch into $USDT from an investment that gave them exposure to $USDC and the decentralized stablecoin $DAI, but they only got $0.05 back in exchange.
The “desperate” trader held $2 million worth of liquidity provider tokens on Curve’s 3CRv, which offers exposure to $DAI, $USDC, and $USDT and allows holders to earn from trading fees, according to an analyst’s assessment of the trade and a postmortem report from the decentralized exchange aggregator used, KyberSwap.
The trader apparently wanted to trade the liquidity provider tokens rather than just withdrawing from the liquidity pool for 6% slippage, which resulted in the subpar trade, while a $42 billion bank run in traditional finance compromised the backing of USDC before US regulators moved in at Silicon Valley Bank.
According to sources, the trader failed to correctly establish slippage. Slippage is the gap “between the predicted price of an order and the price when the order actually executes,” according to Coinbase. The investor’s deal was ultimately routed through 0x’s route by KyberSwap’s aggregator since it was the only one that accurately predicted the gas fee required to complete the transactions. As a result, the trade was executed on Uniswap V2 utilizing a liquidity pool with just $2 in available liquidity that had been sitting inactive for 251 days.
The traders saw a return of just $0.05 in USDT on the $2 million deal, which put the liquidity pool out of balance because the trade was executed against a liquidity pool with $2 of liquidity in it and no slippage was established. A blockchain bot promptly intervened after seeing the disparity to enable the trade of $2 million for an extra $.145.
When the user made their terrible trade, the bot, who had paid over $39,000 to conduct the trade, ended up making almost $2.04 million in profit from it. According to KyberSwap, it is in communication with the impacted user as well as the bot’s developer, cryptocurrency exchange Coinbase, and “other parties to assist with monies recovery.” Before confirming the final transaction, the portal advised customers to “perform a final check on the swap rates displayed.”
The trader was probably in a tough situation because over the weekend, USDC and DAI both lost their pegs to the dollar after it was discovered that the former kept some of its reserves at Silicon Valley Bank. Among other digital currencies, USDC is one of the backings for DAI.
As US regulators announced plans to protect all depositors at Silicon Valley Bank and Signature Bank following their recent closures, the peg has almost completely been restored. Once Silicon Valley Bank was shut down and given to the Federal Deposit Insurance Corporation last week, US regulators have made sure that all of the deposits there are fully protected (FDIC).