An unusual swap between USDT and AAVE has created chaos among crypto enthusiasts on X. The problem is not swapping itself, but the fact that a trader exchanged $50 million worth of USDT for AAVE tokens (Aave Protocol). And the trader received only 324–327 AAVE tokens worth about $36,000.
This shocking news comes following the recent Oracle malfunction on Aave Protocol that caused $21 million worth of wstETH to be liquidated.
$50 million USDT trader pays huge slippage
The trader received $36,000 in AAVE, which is much less than $50 million in USDT. The anonymous trader fell into a gargantuan loss because of extreme slippage.
Slippage refers to the difference between the expected price when placing a trade and the actual executed price. In this case, the trader had to pay extra money worth of USDT to get AAVE tokens.
Slippage usually happens when there are fewer tokens in liquidity pools, huge traders, market volatility, and slow transaction confirmation. In other words, it’s the extra cost or loss incurred by a trader when executing a trade.
In the $50 million incident, the liquidity pool was too small, and the value of the AAVE token surged drastically during the swap. As such, the trader received very few AAVE tokens worth $36,000.
Trader receives slippage warning, says AAVE founder
As the user’s trade order is quite large, AAVE Founder and CEO Stani Kulechov said that the AAVE interface showed a warning signal to the trader about unusual slippage and required confirmation via a checkbox.
Despite the warning, the user clicked the confirmation box to move forward to swap the tokens, “accepting the high slippage.” The trade system worked normally through Cow Swap, a decentralized exchange (DEX) and bridge aggregator interface.
It followed standard industry practices, said the AAVE executive. Although everything looked well technically, the outcome was poor.
Although the AAVE executives had sent the warning signal to the trader, they have planned to refund $600,000 in fees collected from the transaction during swapping as a goodwill gesture.
$50 million USDT swap could not be a mistake: Crypto developer
According to a crypto developer, Vadim, the trader might have intentionally swapped $50 million for $36,000 AAVE tokens, despite receiving a warning. The wallet is quite new and runs on Binance.
The trade was possibly routed through poor liquidity pools on SushiSwap. This might have potentially affected the price of the AAVE token.
The crypto developer also talks about possible money laundering through the MEV (Maximal Extractable Value) bot.
Can DeFi be built better?
As Stani Kulechov put his words forward, he underscored that DeFi should remain permissionless or open, where users can make any transaction; however, the industry should follow better safeguards to prevent costly mistakes.
To avoid mistakes, DeFi can implement slippage control, clear trade simulations, and smarter order routing.
Apart from slippage risks, DeFi has been going through several hacks, oracle malfunctions, and other security breaches, including oracle manipulation. Balancer DeFi protocol, Solv Protocol, and Truebit Protocol are some of the DeFi platforms hit with exploits in recent times.
