A disastrous token mixup on Uniswap V3 led one liquidity provider to lose over $700,000 in less than 15 seconds this morning. The user apparently confused the native CRV token with USD when providing liquidity.
The pool creator added $1.56 million worth of wrapped BTC, expecting to receive the USD-equivalent in CRV tokens based on the pool ratio. However, they instead received 1.56 million CRV tokens which were only worth around $850,000 total at the time.
MEV (maximal extractable value) bots quickly seized on the significant arbitrage opportunity as soon as the pool was created. Through monitoring pending transactions, they identified the discrepancy in value between the deposited BTC and received CRV.
The fastest MEV bot paid a priority fee of over $527,000 to frontrun and have its transaction confirmed first. This allowed it to siphon value from the pool before other arbitrageurs could react. In total, the bot netted a profit of around $260 after fees for its 12 second transaction.
The user appears to have mistakenly input the amount of CRV tokens instead of actual USD when creating the pool. This led to the dramatic difference between their deposited BTC and returned CRV based on relative token values.
Somebody just lost $700K in 12 seconds thanks to MEV Bots.
— Arkham (@ArkhamIntel) November 4, 2023
0x568 was a large LP who entered the wrong values while creating a new WBTC-CRV pool on Uniswap v3 – and ended up adding $1.5M of liquidity far above fair market price. pic.twitter.com/0KYWq5t305
The incident highlights the risks of using complex DeFi protocols like Uniswap without fully understanding token values and pool ratios. A small mistake can have instant and catastrophic consequences.
While a painful lesson, perhaps the only value recovered is knowledge to be far more careful when providing liquidity. MEV bots ruthlessly exploit any opportunity for profit without regard to user errors or intent.
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