DeFi: freedom with friction
plus: politics and the energy crisis, market inertia, and more
“It’s not worth doing something unless someone, somewhere, would much rather you weren’t doing it.” – Terry Pratchett ||
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IN THIS NEWSLETTER:
DeFi: freedom with friction
Politics and the energy crisis
Markets: the historical view
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DeFi: freedom with friction
To what extent should traders be allowed to do what they want with their money?
Last week, someone put in a $50 million trade on Aave’s decentralized exchange and ended up with tokens worth around $36,000.
The culprit for the monetary loss was not a mistak; it was apparently due to a lack of liquidity and some confusing engine mechanics. The user wanted to swap aUSDT – a yield-bearing token representing USDT deposited on the Aave platform – for aAAVE, which represent deposited AAVE tokens.
They chose to do so via an integrated front-end for the Aave decentralized engine called CoW Swap, which routes user intents to “solvers” (algorithmic agents or market makers) who find the best quote.
For their ~$50 million in aUSDT tokens, the user was offered aAAVE tokens worth just over $36,200. The front-end issued a warning: “High price impact (99.9%)” and required the user to check a box next to “I confirm the swap with a potential 100% value loss” before proceeding. Inexplicably, the user did that, and the trade was executed.
(image via @aave)
This incident raises the inevitable questions about responsibility. It also highlights two unique and often overlooked features of decentralized finance.
