A trader who utilized the decentralized exchange (DEX) Uniswap V3 experienced a significant loss of over $700,000 due to inputting incorrect values when creating a new liquidity pool.
As reported in a post by on-chain analytics firm Arkham, the user provided a total of $1.5 million in liquidity to the WBTC-CRV pool on Uniswap V3, but did so at a price significantly higher than the prevailing market rate at that time.
Within a mere 12 seconds, Maximal Extractable Value (MEV) bots took advantage of this pricing discrepancy, swiftly exchanging CRV tokens for WBTC tokens, which were considerably more valuable. In this context, CRV represents the governance token of the Curve decentralized finance (DeFi) protocol, while WBTC (Wrapped Bitcoin) is an ERC-20 token that mirrors Bitcoin on the Ethereum blockchain.
Only $260 in profit
Curiously, the MEV bot that profited the most from arbitraging the pricing error only managed to make approximately $260. This, however, came at the cost of paying around $527,000 worth of Ether as a form of bribe to validators in order to gain an advantage over other competing bots.
The incident is likely attributed to what’s commonly referred to as a “fat finger” error, typically occurring when entering a trade, or in this case, while establishing a new liquidity pool.
A plausible explanation that has surfaced suggests that the user may have confused the CRV token with USD when adding $1.56 million worth of WBTC to the pool. In return, the user received 1.56 million CRV tokens, which, in terms of US dollars, currently hold a value of only approximately $900,000.
What are MEV bots?
Maximal Extractable Value (MEV) bots, previously lesser-known, have recently gained significance within the DeFi ecosystem on the Ethereum network.
These bots are engineered to swiftly recognize and capitalize on profit opportunities within decentralized exchanges, yet they have also been linked to what some consider to be scams and ethically questionable tactics. Occasionally, they are referred to as Miner Extractable Value, and their profitability is achieved by persuading miners or network validators to reorder or censor certain transactions within blockchain blocks.