Thread by @0xilikecats

1/ $WTF: A service, a token, and what everyone said five minutes into the launch when one bot drained 58 ETH from the pool.

Let's take a look at what happened.

🧵👇

2/ fees.wtf is a dApp which connects to your Ethereum wallet and tells you how much ETH you've spent on transaction fees over the history of your wallet.

They attempted to follow the hype cycle behind free token airdrops such as $SOS and $GAS.

3/ A liquidity pool ("LP") is how DeFi protocols operate: Individuals may add liquidity to a pair (in this case WETH <> WTF) to allow for buyers and sellers to quickly transact on a given pair instead of waiting for a willing buyer and seller on each side of the order book.

4/ LP participants earn a percentage of the transaction fees collected by the DeFi protocol in exchange for the liquidity they've provided.

They may remove this liquidity at any time, and one of the risks of an LP is something called impermanent loss -- a topic for another day.

5/ The really quick version of impermanent loss is that what you take out of the pool is proportional to what you put in, but the value might be less than if you never LPed to begin with.

6/ Here's what happened. When the token launched, the devs added $WTF liquidity to the pool.

Specifically, they added 2211.46 $WTF and almost zero $WETH.

etherscan.io/tx/0xec34f30b9…

7/ Immediately after, bots hoping to drain the LP begain running. One went in and purchased 2211.45 $WTF from the pool for 2 ETH.

This caused the price of $WTF to spike, and other bots who went in to purchase fractions of the remaining .01 $WTF paid more and more.

8/ During this chaos, one operator struck.

They sent two transactions. The first was to buy "a little bit" of $WTF, which at that time was worth 10 ETH:

etherscan.io/tx/0x0c9073f07…

9/ At this point, the $WETH <> $WTF pair had accumulated dozens of ETH in purchases from bots with almost no $WTF left in the pool, meaning that selling any amount $WTF would be massively profitable.

10/ Then the operator sent an ultra fast transaction at 3000 gwei on the next block, selling the same $WTF they had purchased in the prior for nearly 6x what they had bought it for.

Since they paid 3000 gwei, they were the next transaction to be confirmed.

11/ As a result, this person was able to successfully drain 58 ETH in liquidity from the $WETH <> $WTF pool in under a minute:

etherscan.io/tx/0x1cfac232b…

12/ As of right now, $WTF is hovering around $0.20/token.

From what I could tell, this initial action was caused by bots each attempting to drain the LP as fast as they can and hurting each other in the process.

In this zero-sum game, one bot emerged victorious.

13/ Lessons to take away:

Unless you're attempting to bot the initial liquidity, don't FOMO into buying a newly launched altcoin with high slippage.

If you purchased during the initial chaos, the price swings would have destroyed you.

14/ For free airdrops like these, there's no point stressing over what could have been. If you were fortunate ehough to claim a big amount of $WTF and cash it out for a profit, be happy.

I know someone's going to be pedantic about the 0.01 ETH "service fee", but really now.

15/ If you've learned something today, I'd be really grateful if you shared it with someone who might also find it helpful.

Thanks for reading, I'll see you out there in the metaverse.

Big shoutout to @slywalrus1 for helping proofread this and point out some flaws in my first draft.