A user on Kyber Network lost $2 million in what is believed to be a routing error on the defi platform. The network has also dubbed it a mistake on the user’s part and announced a rectification of the trade.
On March 11, a KyberSwap user only received 0.05 USDT while exchanging 2 million USD Coins (USDC)
Details of $2M Trade on Kyber
The Kyber Network said in an update that a user tried to trade a Curve Liquidity Protocol token (3CRV). The trade consisted of USDC-USDT-DAI on KyberSwap UI.
It noted, “This is atypical as one would withdraw LP tokens from a pool, not trade it.”
The network explained that the swap created a deviation in the liquidity pool. Notably, the trade occurred on the back of the Silicon Valley Bank’s collapse, which sent the industry into a panic. Circle revealed an exposure of $3.3 billion in the collapsed lender on the day. It is a massive exposure out of its ~$40 billion USDC reserves in the banking system.
The news led to the de-peg of the USD Coin (USDC) against the U.S. dollar. It also spiraled to an all-time low following the de-peg. Meanwhile, other companies like Roku and BlockFi also listed their holdings in SVB, revealing potential losses.
To many, the transaction appeared to be a panic sale.
Why the Trade Received a Poor Swap?
Kyber found that “Since the market was undergoing a volatile period, all routes failed at estimating gas. The rate strongly fluctuated & only 0x’s route was successful but with a very poor rate.”
The user is assumed to have taken the loss-making trading without double-checking the swap rate to escape losses following the contagion.
Kyber Network noted,
“The user saw an acceptable rate, after which he clicked Swap.” The price was locked by the KyberSwap UI with a pop-up notification, but the meta-aggregator kept rechecking all the proposed routes of aggregators. Therefore, the trade encountered “an unusually low return on the user’s swap.”
According to the platform, the Kyber squad will deal with this unfortunate situation. Meanwhile, the loss-making swap could also result from a malfunction in KyberSwap as a meta aggregator. It is noted the routing from the 0x aggregator API was the only valid option in this instance.
Did the Kyber User Panic Sell?
The company defended its position. It claimed that the user’s rate for 0x was presented in a pop-up window. Adding that, they still went ahead and made the swap without realizing it was a low-return trade.
“The user signed with the corresponding new data by clicking Confirm Swap, and the swap was executed via 0x.”
Meanwhile, due to the drastic difference in the swap, a maximal extractable value (MEV) bot reportedly gained 2,085,256 USDC from arbitrage in the Univ2 pool. According to KyberSwap, the conclusion was a regrettable result of unusual factors and market volatility.
But as a result of the incident, KyberSwap UI improved its display prompts.
It noted, “Anytime the new price is worse than the initial price quoted, we will display a warning to the user, and ask the user to accept the new price before proceeding with the swap.”
Blockchain: An Immutable Ledger?
Despite these improvements, the platform advised users to confirm the swap details before proceeding with the trade. The platform, in the meantime, is said to have gotten in touch with the user. The platform also said it would connect with the bot creator, bot users, and Coinbase to assist in fund recovery.
While many Twitter users are glad that Kyber is taking steps to rectify the unfortunate trade, some aren’t glad about the reversal or alteration of an on-chain transaction.
That said, another debate is whether platforms can tamper with the essential element of irreversibility on the blockchain. This is because it operates through an immutable ledger spread across many nodes, forming the basis of the technology.
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