A large decentralized finance transaction on the Ethereum network resulted in a loss of approximately $2 million because it was routed through a low-liquidity pool. In the transaction pointed out by Lookonchain, which monitors on-chain data, and reviewed by GoPlus Security, assets worth approximately $2.01 million were exchanged for 1,126.44 ETH.
Trading route deepened the loss
In return for this transaction, the investor received only 5,776 LITs worth approximately $14,200. GoPlus Security reported that the loss was not caused by an attack or a classic front trading pattern, but was caused by a backtracker arbitrage mechanism operating within the same block taking advantage of the price imbalance. GoPlus Security is known as a security company working on blockchain transactions and smart contract risks.
GoPlus Security evaluated that the incident was not a breach or a classic front transaction, but that price imbalance was used due to backtracking arbitrage occurring within the same block.
The offending swap was moved through the AVAIL/WETH pool on Uniswap V3. The extremely limited liquidity in the pool in question caused the large ETH order to push the AVAIL price up sharply. Thus, the investor had to buy the token at a level much higher than the market value.
| Pen | Data |
|---|---|
| Initial entity | 1,126.44 ETH |
| initial value | Approximately $2.01 million |
| acquired asset | 5,776 LITs |
| last value | Approximately $14,200 |
Arbitrage within the same block attracted attention
The process then continued via additional routes. AVAIL tokens were first converted to USDC, and then the LIT purchase was completed on Uniswap V4. However, due to poor pricing along the route, almost all of the value of the initial ETH was wiped out.
According to the structure cited by GoPlus Security, after the large order disrupted the price in the AVAIL/WETH pool, a backtracker bought AVAIL from another source at a level close to the normal market price. He then sold these tokens to the pool where the inflated price occurred, withdrawing over 1,072 WETH.
Mini dictionary: MEV refers to the possibility of additional earnings arising from the sequencing of transactions during block production. A backrunner is a participant who usually sits right behind a large transaction and takes advantage of the price deviation created by that transaction.
On-chain data showed that approximately 1,018 ETH were subsequently sent to Titan Builder as producer payments.
Low liquidity increases risk on large orders
On-chain records revealed that approximately 1,018 ETH were later transferred to Titan Builder as producer payments. This also showed how MEV participants generate income by capturing price imbalances during the block production process. Titan Builder stands out as one of the structures that compiles transactions in the Ethereum block production flow.
The incident brought to the fore the risk of placing large orders through pools with limited liquidity. When the trading route passes through shallow markets, even a single large order can move prices sharply in a short period of time. Although arbitrage transactions establish the balance later, users can pay much more than the real market value of the asset in this process.
This example also revealed the need for more advanced routing systems in decentralized transactions. Systems that avoid pools with poor liquidity and calculate transaction costs more accurately on a route basis can reduce application losses of similar magnitude.
