A flaw in the setup of a liquidity provider (LP) on Uniswap V3 has resulted in a user earning over $331,000 in just a few seconds. This lucky individual had initially sent only 0.1 ETH to the Art Coin presale.
Art Coin Liquidity Pool On Uniswap V3 Drained
Presales on decentralized platforms like Uniswap, which is a popular decentralized exchange, allows a listing project to exchange their native token for other more liquid cryptocurrencies.
In Ethereum where Uniswap V3 was first launched, Art Coin, a platform focused on art for artists, allowed supporters to exchange their token, ART, for ETH.
Uniswap Price On May 8| Source: UNIUSDT On Binance, TradingView
Upon discovering a flaw in Uniswap V3’s presale process, the user promptly sold their presale allocation for 181 ETH, which amounted to over $331,000, on May 7th. Prior to this, the user had bought 0.01 ETH of ART during the presale.
dude sent 0.1 ETH for the presale, got his allocation, realized the pool was setup redactedly, and just dumped it for 181~ ETH instantly pic.twitter.com/Mk9PESJsAM
— DeeZe ???? (@DeeZe) May 7, 2023
Some have questioned the legality of the dump saying the trader committed an offense similar to a rug pull.
However, the consensus is that the responsibility lies with the project’s developers and not the “lucky” user who picked out the flaw and exploited it.
Art Coin founders have since issued a statement, saying the flaw was due to a miscommunication:
Two developers were going to help us understand LP and set it up. There was a miscommunication and we set up the LP before distributing tokens. So when we sent out the first batch, the bots went crazy and drained it.
The flaw, and subsequent exploit, points to the complexities of Uniswap V3. This latest version of Uniswap, which had a business license which expired in early April, introduces the concentrated liquidity feature where liquidity providers (LPs) can provide it within a given range.
In this arrangement, Uniswap says LPs can better utilize their funds, earning more rewards when they supply. Nonetheless, the deploying project seeking liquidity from the community must be keen and ensure that they customize their parameters in such a way that their efficiency in liquidity provision and traders cannot take advantage and exit at above-rate levels.
In the Art Coin’s case, the user exited at higher market rates, essentially draining the project’s funds. With 181 ETH of the presale funds gone, Art Coin has 40 ETH left and plans to conduct a new fundraising round.
2) The founder and I got very shocked looking at these events playing out. @Stocktrader have decided to take a break.
I’m going to build a team of devs.
Final goal is to relaunch.
We have 40 eth and could relaunch with that as LP. ..->
— $ART (@artethcoin) May 7, 2023
Crypto Developers Beware
Uniswap V3 can now be forked by any decentralized finance (DeFi) project. Currently, PancakeSwap and SushiSwap decentralized exchanges have launched new versions of their platforms adopting concentrated liquidity and other features found in Uniswap V3.
The complexities, especially in liquidity provision, makes Uniswap V3 tricky especially for inexperienced developers who don’t fully understand how the version operates.
The issue is worsened by the inalterable and transparent nature of on-chain transactions. If a weakness is exploited and the pool is drained, the cost can be significant. In Art Coin’s case, developers have chosen to continue supplying liquidity with lower amounts while considering another presale. They will only receive funds if the trader has a change of heart, refunding the project’s developer.
Feature Image From Canva, Chart From TradingView
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Author: Dalmas Ngetich