Costly Mistake: Here’s How a USDC Investor Lost 2 Million in a Race Against Time
A USDC investor paid over $2 million to receive only $0.05 of USDT while trying to evade a crypto market crash.
The incident highlights the importance of double-checking information and methods of transfer before cashing out cryptocurrencies to avoid a permanent loss of funds.
The collapse of Silicon Valley Bank (SVB) on March 10 has caused ripples in the crypto industry, leaving many investors anxious about the exposure of major players like Circle, the issuer of the popular stablecoin USDC. With $3.3 billion, or around 8%, of its reserves held at SVB, Circle is now facing heavy redemptions as investors move to cash out.
The fear of USDC insolvency has caused users to flee to safety in other stablecoins. However, panic sales have resulted in mistakes, with one unlucky user paying $2,080,468.85 to receive only $0.05 of USDT. This costly mistake was revealed in a Twitter thread by BowTiedPickle.ETH
The sequence of events
This investor decided to exchange their USDC for other stablecoins like Tether to avoid the crash. However, little did they know that this decision would cost them a fortune. They paid over $2 million to receive only $0.05 of USDT!
How could this happen, you ask? Well, the investor had stored their assets in a liquidity pool, a popular method to earn passive income in cryptocurrencies. They could have easily sold their LP tokens for USDT at a 6% slippage, but they chose a questionable method instead.
They used the KyberSwap aggregation router to dump a large clip of 3CRV (DAI/USDC/USDT) LP token into USDT, a questionable decision that would cost them dearly.
The UniswapV2 pool, pairing 3CRV/USDC, had sat idle for the last 251 days. The pool contained about $2 in liquidity and was in no way equipped to handle the $2 million that was about to be slammed into it. The investor’s mistake was costly, as x * y = k quickly did its grim work.
Exactly 54,182 units of USDC, worth about 5 cents, left the contract for the second leg of the swap, where they were happily swapped into USDT and went on to the swapper. The pool, now hideously imbalanced, cried out for aid, and an MEV bot answered the call.
The bot paid $45 in gas and $39k in MEV bribes, netting $2.045M in profit. This was not a particularly complex bot, just one with the ability to unwrap 3CRV, flash bots, and back run. It was a simple case of equal opportunity but unequal results.
It’s a cautionary tale of how human error can result in a permanent loss of funds. The investor’s mistake cost them dearly, but it also highlights the importance of double-checking information and methods of a transfer before cashing out cryptocurrencies.
As the cryptocurrency market continues to evolve, investors must stay vigilant and keep their wits about them. One wrong move could mean the difference between making a fortune and losing everything.