A flaw in the Liquidity Provider (LP) setup on Uniswap V3 resulted in a user earning more than $331,000 in just a few seconds. This lucky person initially sent only 0.1 ETH to the Art Coin pre-sale.
Collect Technical Coins liquidity on Uniswap V3 Drained
Pre-sales on decentralized platforms such as Uniswap, a popular decentralized exchange, allow a listing project to exchange its native token for other, more liquid cryptocurrencies.
On Ethereum where Uniswap V3 first launched, Art Coin, an art-focused platform for artists, allowed supporters to exchange their token, ART, for ETH.
When a defect is discovered in the pre-sale process of Uniswap V3, User Sold instantly A pre-sale of 181 ETH, which amounted to more than $331,000, took place on May 7. Prior to this, the user purchased 0.01 ETH from ART during a pre-sale.
Dude sent 0.1 ETH for pre-sale, got his allotment, realized the pool was redacted, and just dumped it for ~181 ETH right away pic.twitter.com/Mk9PESJsAM
– Daisy 🫡 (DeeZe) May 7, 2023
Some questioned the legality of the landfill, saying that the merchant had committed a crime similar to pulling the rug.
However, the consensus is that the responsibility lies with the developers of the project and not the “lucky” user who picked up the flaw and exploited it.
Art Coin’s founders have since released a statementsaying that the defect was due to a misunderstanding:
Two developers were helping us understand and set up the LP. There was a misunderstanding and we prepared an LP before the tokens were distributed. So when we sent out the first batch, the bots went crazy and drained us.
The flaw and subsequent exploit point to the intricacies of Uniswap V3. This latest version of Uniswap, which had a commercial license that expired in early April, introduces a concentrated liquidity feature where liquidity providers (LPs) can supply within a certain range.
In this arrangement, Uniswap says LPs can put their money to better use, earning more rewards when they supply. However, a publishing project seeking liquidity from the community must be careful and ensure that their criteria are allocated in such a way that they are efficient in providing liquidity and that traders cannot take advantage of and exit at higher than average levels.
In the case of Art Coin, the user came out with higher market rates, essentially draining the project’s funds. With 181 ETH of pre-funds gone, Art Coin holds 40 ETH and plans to run a new fundraising round.
2) The founder and I were deeply shocked when I saw these events in action. @ stock trader I decided to take a break.
I will build a team of developers.
The ultimate goal is reboot.
We have 40 eth and can relaunch it with LP. ..->
– $ART (artethcoin) May 7, 2023
Crypto developers beware
Uniswap V3 can now be forked by any decentralized finance (DeFi) project. Currently, the decentralized exchanges PancakeSwap and SushiSwap have launched new versions of their platforms based on Focused Liquidity and other features found in Uniswap V3.
The complexities, especially in providing liquidity, make Uniswap V3 challenging especially for inexperienced developers who don’t fully understand how the release works.
The problem has been exacerbated by the immutable and transparent nature of transactions across the chain. If a weak spot is exploited and the pool is drained, the cost can be significant. In the case of Art Coin, the developers have chosen to continue providing liquidity in smaller amounts while considering another pre-sale. They will only receive the money if the merchant changes its mind, and refunds the project developer.
Featured image from Canva, chart from TradingView