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Savvy trader pounced on $125m Multichain hack to execute ‘smartest arb in crypto history’

Savvy trader pounced on $125m Multichain hack to execute ‘smartest arb in crypto history’
DeFiMarkets
A crypto casino sold more than 1 million USDC tokens at a loss after a savvy crypto trader used it to arbitrage the token's de-peg on Fantom.
  • Investor seized on massive price differences after valuations plunged on Fantom blockchain network.
  • The wallet pulled off the arbitrage using a crypto casino called BC.GAME

When Multichain was apparently hacked for $125 million, tokens on the Fantom blockchain plummeted — and one trader jumped at an opportunity.

A peer called it the “smartest arb in crypto history,” using shorthand for arbitrage, a trading tactic that exploits price spreads.

Hyperbole? Perhaps. But taking advantage of a decentralised exchange and an online crypto casino, a handful of crypto wallets bought USDC for $0.50 and sold it for $1, likely netting a couple hundred thousand dollars in profit last week.

The most prolific, whose crypto wallet address begins with 0xfad7, could not be identified or reached for this story.

Hawk-eyed trader

Yet blockchain data flagged by another hawk-eyed trader details a series of trades that capitalised on the chaos that broke out after user assets were mysteriously drained from billion-dollar crypto bridge Multichain.

On July 6, Multichain said $125 million in users’ crypto had been moved to “an unknown address abnormally.” Victims have since debated whether it was a hack, an inside job, or something else entirely.

NOW READ: Multichain workers in China fear for safety after CEO’s arrest, says Fantom boss

Whatever the case, it caused assets on Fantom to plummet in value.

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Like other crypto “bridges,” Multichain allows users to transfer tokens between otherwise incompatible blockchains. It is central to the functioning of the Fantom blockchain.

‘The casino blocked my account, my withdrawals and asked me for a very strict KYC which I obviously did not do.’

—  Bob

Since last year, Fantom has relied on Multichain to keep many of the assets in its ecosystem trading at the correct values.

The apparent hack meant that many of the assets on Fantom had lost their backing. USDC tokens, for example, are always supposed to be worth $1 but began to trade at about $0.50.

One pseudonymous trader, who goes by Bob, was following the plunge in USDC’s value. If he could buy USDC on the cheap, he might be able to profit in the event the peg was restored or Fantom chose to compensate victims.

Repeat buying

He quickly noticed a couple crypto wallets doing just that — hovering up cheap USDC. The repeat buying was so persistent, it almost brought USDC on Fantom back to $1.

“It was destroying the arbitrage, as my goal was to [buy] the USDC as low as possible,” Bob told DL News.

Those wallets would then send the USDC to a single wallet belonging to BC.GAME, a crypto casino that touts its “open-source code and provably fair games.”

NOW READ: Is crypto really as addictive as gambling?

BC.GAME had, apparently, not accounted for the possibility that assets might trade at anything other than their fair market value.

0xfad7 and a couple other wallets were able to send de-pegged USDC to BC.GAME and, after betting on low-risk games — a condition for pulling one’s money back out — withdraw USDC worth $1 to other blockchains, where those tokens, unaffected by the Multichain exploit, had kept their peg.

BC.GAME did not return requests for comment.

‘Blocked my account’

Bob tried to get in on the action, but was too late. After a couple hours, BC.GAME had, apparently, realised what was happening.

“The casino blocked my account, my withdrawals and asked me for a very strict KYC which I obviously did not do,” he said.

“We then looked for other casinos accepting deposits on Fantom, there were three of them but unfortunately all of them had blocked [withdrawals] and ended up asking for a KYC.”

In a weekly blog post, Jeff Dorman, chief investment officer at crypto trading firm Arca called it the “smartest arb in crypto history.”

NOW READ: Camelot proposal for $11m ARB token grant faces rejection in Arbitrum DAO vote

Alex Woodard, a research analyst at Arca, had also been looking for a way to arbitrage the drop in Fantom USDC, and was impressed by the creativity. He believes the wallets that pulled off the trade all belong to one person making small trades totrades to as to avoid drawing attention to the strategy.

“I had looked at something for two-plus days to try to figure out any way to create this arb,” he told DL News, “and someone else found it, and it was really only one person who found it, in my opinion.”

De-pegged USDC

BC.GAME eventually unloaded its de-pegged USDC — more than 1 million tokens, according to Arca — on Spookyswap, a decentralised exchange on Fantom.

That meant the trader likely netted a couple hundred thousand dollars worth of profit, Woodard said.

“I wouldn’t say this person got lucky because they’re smart enough to figure all of this out. And that’s more than I was able to do.”

Have a tip about crypto casinos? Email them to aleks@dlnews.com.