- A DeFi user lost more than $700,000 in a sandwich attack on the Uniswap exchange.
- The user exchanged USDC 732,583 for USDT, but only received USDT 18,636.
- Experts speculated that the transaction could be a money laundering scheme because of how the funds were moved.
A DeFi trader became the topic of discussion among members of the crypto community on Wednesday after losing more than $700,000 in stablecoins due to a sandwich attack on the Uniswap v3 protocol. MEV bots attacked the trader on six separate transactions with 100% slippage.
Community experts speculated that the trades were a money laundering attempt due to the pattern each transaction followed.
DeFi trader loses funds in Uniswap sandwich attack
An unknown DeFi trader caught the attention of crypto community members after losing money in an attempt to make an exchange in a Uniswap liquidity pool.
The user attempted to exchange USDC 732,583 for USDT, but encountered a sandwich attack before confirmation. The user's funds were intercepted in six different transactions, resulting in a loss of $714,000 in USDT. One particular exchange of 221,000 USDC for USDT resulted in a loss of 216,000 USDT.
Sandwich attacks are a front-running strategy in DeFi trading. It involves an attacker exploiting the transparency of the blockchain by placing two transactions - before and after - around a large order from a user to profit from the price difference.
The trader used a Uniswap v3 liquidity pool, where he placed funds in a USDC-USDT pool with more than $35 million in assets.
Michael Nadeau, founder of DeFi Research, noted that the liquidity in the pool was drained by an MEV bot that front-runnered the user's transaction. The attacker also tipped $200,000 to an anonymous blockbuilder named bobTheBuilder and made a profit of $8,000 on the transaction.
MEV bots are automated trading programs that seek to maximize profits by exploiting opportunities through transactions on the blockchain.
However, it appears that the trader was the cause of the attack due to the high slippage used in the execution of the transfer.
“This was not done on the Uniswap interface (which has a suggested slippage). This was done over the old v3 exchange router (not the universal router). It looks like they set the slippage to 100% for this trade,” stated Niko, Uniswap environment curator, in an X response.
Uniswap Labs founder Hayden Adams also responded to several comments on X, stating that the attack could have been caused by a faulty bot or a bad user interface.
Adams added that the user could have prevented the loss if he had set a lower slippage tolerance.
However, the nature of the transactions has led to speculation that it could have been an attempt to launder funds. One main reason is that the transactions did not come from Uniswap's front-end interface, which offers MEV protection and options for slippage settings.
In addition, DefiLlama's anonymous founder, Oxngmi, noted in an X post that the management involved in the transactions was funded through a mixer-like platform.
In addition, the funds deposited originated from another address, which had previously withdrawn assets from Aave before transferring them to a separate address.
“So you have a bunch of single-use addresses passing money to each other in strange ways that are difficult for the software to track. A normal user would just transfer USDC directly between addresses,” Oxngmi added.
Several other market participants also suggested that the attacks could be an intentional money laundering scheme.