DeutschUsing the popular lending platform Aave, a trader lost 50 million US dollars they planned to invest within seconds. According to public information, there was no technical defect. Instead, the trader wiped out their fortune on their own. How this could happen and why Aave now wants to introduce better security measures anyway.
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Crypto trader loses 50 million in DeFi: How can this happen?
An unknown crypto trader recently swapped 50 million US dollars in a derivative of the stablecoin USDT for a derivative of the governance token Aave. To do this, they used the Aave lending portal. The swap was carried out via the integrated CoW Protocol. In the end, the user lost almost all of their 50 million US dollars through the DeFi application.
It was Aave founder Stani Kulechov who drew attention to the incident a few days ago. He got wind of it because the swap involved enormous volume and extremely high losses.
Blockchain data shows: The user invested 50.4 million US dollars and received only 36,000 US dollars in return – specifically 327 aEthAAVE. They faced almost a total loss.
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Kulechov reassures the public. No technical defect occurred. Everything worked as planned. The user simply ignored the slippage – either intentionally or accidentally.
“Given the unusually high volume within a single order, the Aave interface – like most trading platforms – warned the user of exceptional deviations and required confirmation via a checkbox,” Kulechov wrote.
“The user confirmed the warning on their mobile device and executed the swap, accepting the high slippage.”
Aave collected 600,000 US dollars in fees from the swap. Kulechov explained that these would be returned to the user. The reason: The trade clearly did not go as intended and caused enormous damage, which Aave does not want to profit from.
“We sympathize with the user and will try to contact them; furthermore, we will refund the 600,000 dollars in fees collected as part of the transaction.”
While they have followed the industry standard and accepted users’ free choices so far, Aave now wants to implement additional security mechanisms to prevent such damage in the future.
Slippage: How to avoid losses in DeFi
The term slippage describes an important element of DeFi that users should always keep in mind. In German, it can be translated as “Abweichung.” Due to the decentralized nature of dApps, various factors can cause slippage. This results in the user receiving less in return than they would normally be entitled to.
Low liquidity can lead to enormous slippage when swapping between different cryptocurrencies – which is exactly what happened in this case. The unknown user wanted to purchase 50 million US dollars’ worth of aEthAAVE, but the CoW Protocol only had 36,000 US dollars in coverage at that time. As a result, no higher amount could be paid out to the trader.
Despite the warning, the unknown person went ahead with the unfair swap. They may have misunderstood the automated warnings provided by the system. Swapping 50 million US dollars in a single trade is considered unwise.
Large amounts should be split up and swapped gradually over a longer period. In addition to a lack of liquidity, a sudden high demand can also lead to unnecessary price increases.
