Trader makes error in XMON unlock strategy — loses 100% of trade in slippage

A crypto user was sandwich attacked for effectively the entire amount of their token swap after failing to implement slippage protection into their custom contract. They ended up swapping $10,000 for less than $4, as noted by Arkham Intelligence.

The user was attempting to make a complicated trade related to the XMON unlocks — though their second transaction was too slow for the trade to have been profitable anyway, according to Igor Igamberdiev, head of research at prop trading firm Wintermute.

What was the trade trying to achieve?

The trade was focused on trying to extract value from the XMON unlocks while limiting exposure to the token for any length of time.

Sudoswap, a protocol for trading NFTs, had a deal where anyone who locked up their XMON tokens during a one-month period would receive an airdrop of the project's governance token, SUDO. They would receive their SUDO tokens immediately and would be able to unlock their XMON at the end of the lockup period. Everyone's tokens would unlock at the same moment.

This particular trader tried to take advantage of this. Judging by the transactions they made, they wanted to buy XMON at the last moment, lock it up and receive the airdrop. Then they tried to unlock the XMON the moment the lockup period ended.

Only this went wrong in two ways.

The first mistake was failing to implement slippage protection. When they first traded the $10,000 of WETH for XMON, they set the minimum amount that they were prepared to receive from the trade at $0 — having written a custom contract — according to Igamberdiev.

A separate frontrunner picked up on this error and manipulated the market so that the trader swapped their tokens for, effectively, nothing in return. The frontrunner did so by swapping 2,000 ETH for XMON before the transaction and doing the reverse afterward. They made a 5.7 ETH ($9,400) profit from doing so.

Once this happened, the contract automatically locked up the pitiful amount of XMON that the trader received — some 0.00016 tokens, worth $3.90 at the time. As a result, they received an airdrop of 1.66 SUDO, then worth $3.70.

Too slow for MEV-land

The second mistake is that the trader took too long to unlock the XMON tokens. While this became irrelevant because of the previously failed trade, it would have essentially prevented the entire strategy from being successful anyway.

The trader managed to get the transaction unlocking their XMON into the third block after the unlocks were possible. While this might seem like a small delay, it makes a big difference in such a highly competitive moment. During these 30 seconds or so, the price of XMON plummeted as other traders unlocked their tokens and sold them immediately.

According to rough calculations, if the trader had made the first trade successfully and sold the moment the unlocks happened, they would have made around $7,000 profit. Since they were so late to the unlocks, they would have roughly broken even — again, assuming the first trade had worked. But after failing at the first hurdle, they ended up down $10,000.

This example shows that there's certainly profit in the MEV world — but it's a ruthless landscape with a lot of risks too.