Whale Loses $50M on Aave Swap After Slippage; MEV Bot Gains $9.9M
Generally, I think it’s pretty clear that a whale made a huge mistake, trying to swap $50M USDT for AAVE on CoW Swap, and ended up with only $50k in tokens, which is basically nothing. Normally, you would expect a big loss like this to happen because of some kind of hack, but actually it was just human error. Usually, when you’re dealing with large amounts of money, you want to be extra careful, and this is a perfect example of what can go wrong if you’re not. Obviously, the loss happened because of extreme slippage, and it’s pretty interesting to learn about what happened and what it reveals about DeFi liquidity and MEV risks.
Why the trade collapsed
Apparently, the trader saw a massive order on March 12, and it was a single-click trade that turned into a $50 million disaster, which is just crazy. Normally, when you’re making a big trade like this, you would want to use some kind of protection, like MEV-protection tools, but the trader didn’t use any. Essentially, the market just couldn’t handle a trade of that size, and the price skyrocketed, resulting in a huge loss. Obviously, the AMM ran out of cheap AAVE, and the final result was only 324 AAVE, which is about $50k, a tiny fraction of the original amount.
Clearly, the warning about “extraordinary slippage” was shown, but the user ignored it, which is pretty surprising, considering the potential risks. Generally, when you’re dealing with large amounts of money, you want to be extra careful, and this is a perfect example of what can go wrong if you’re not. Both CoW Swap and Aave Labs said that the warning was shown, but the user just didn’t listen. Usually, institutions split big orders or go OTC, so they avoid this kind of fat-finger mistake, but in this case, the trader didn’t do that.
Evidently, human error caused the loss, not a hack, and the trader didn’t use any MEV-protection tools, which is pretty surprising. Normally, when you’re making a big trade like this, you would want to use some kind of protection, like MEV-protection tools, but the trader didn’t use any. Obviously, Ethereum is solid for settlement, but the UI layer of DeFi still lets you mess up badly, which is a big problem. Generally, when you’re dealing with large amounts of money, you want to be extra careful, and this is a perfect example of what can go wrong if you’re not.
MEV bot profits
Interestingly, while the whale burned $50 million, a MEV bot swooped in and grabbed about $9.9 million, which is a huge profit. Apparently, the bot probably front-ran or sandwiched the trade, taking advantage of the huge price impact, which is pretty clever. Normally, when you’re dealing with large amounts of money, you want to be extra careful, and this is a perfect example of what can go wrong if you’re not. Essentially, the gap between the expected result and the actual result shows why you need anti-MEV features when you move big sums.
Generally, it’s pretty clear that MEV bots can make a lot of money by exploiting trades like this, and it’s a big problem for DeFi. Obviously, when you’re making a big trade, you want to use some kind of protection, like MEV-protection tools, to avoid losing money to MEV bots. Usually, institutions split big orders or go OTC, so they avoid this kind of fat-finger mistake, but in this case, the trader didn’t do that.
Aftermath and lessons
Apparently, Aave founder Stani Kulechov said they’re trying to return about $600 k in fees, which is barely 1 % of the loss, so it’s not much help to the trader. Normally, when you’re dealing with large amounts of money, you want to be extra careful, and this is a perfect example of what can go wrong if you’re not. Obviously, once a transaction is mined, there’s no undo button, and blockchain is immutable, so the loss is permanent. Generally, the key takeaways from this experience are to listen to slippage warnings, use MEV protection, split orders or go OTC, and know liquidity limits, which is pretty straightforward.
Evidently, even without a hack, a trader can lose almost everything with one bad swap, which is a big risk. Normally, when you’re making a big trade, you want to use some kind of protection, like MEV-protection tools, to avoid losing money to MEV bots. Obviously, DeFi needs better UI safeguards and more education to stop these catastrophes, which is a big problem that needs to be addressed. Generally, when you’re dealing with large amounts of money, you want to be extra careful, and this is a perfect example of what can go wrong if you’re not.
