Another day, another costly mistake by a crypto trader. This time, it was a Cardano (ADA) veteran who had to part ways with 90% of the $6.9 million ADA stack, as they executed a botched token swap.
Cardano holder takes 90% loss
According to a recent Telegram post by cryptocurrency on-chain investigator ZachXBT, a Cardano veteran – who had been holding the token for at least five years – mistakenly swapped 14.4 million ADA tokens for just 847,695 USDA – a Cardano-based stablecoin pegged to the USD.
In purely monetary terms, the trader swapped $6.9 million worth of ADA tokens for $847,695, resulting in a significant loss of almost $6.05 million. ZachXBT highlights low liquidity in the USDA liquidity pool as the reason for the disastrous token swap.
A quick look at the traders’ wallet history shows that the swapped ADA tokens had remained dormant since September 12, 2020. The wallet had received slightly more than 11.6 million ADA tokens back in July 2020.
The Cardano wallet address, starting with “addr1qy…4×534”, even did a small test transaction, where the holder swapped 4,437 ADA tokens for $2,125 USD. It is surprising to imagine that someone who held these tokens for five years, fell prey to the mistake of executing a large transaction while interacting with a low liquidity pool.
Be careful with low liquidity pools
To explain, while trading small amounts in low liquidity pools is usually fine, large swaps can be dangerous. A large trade pushes the price against the trader because the pool lacks sufficient tokens to absorb it.
As the trader’s swap transaction progresses, each unit gets exchanged at a worse rate, causing massive slippage and leaving them with far less than the market value. In the crypto industry, such transactions are dubbed ‘fat-finger’ transactions.
One of the signs confirming the low liquidity in the USDA pool is that the stablecoin witnessed a sharp, brief surge to $1.26, almost 26% above its ideal value of $1. The following chart from Coingecko confirms this short-lived spike on November 16.
It is interesting to note that the victim in this ADA transaction previously held no USDA tokens. Hence, it is difficult to determine why they would want to swap their tokens for a relatively less-known stablecoin, which holds a total market cap of $10.3 million at the time of writing.
