A Cardano (ADA) investor, who had been holding the cryptocurrency for five years, experienced a significant financial loss after a poorly executed token swap. The incident, which resulted in the loss of approximately 90% of their ADA holdings, serves as a stark reminder of the risks associated with trading in decentralized finance (DeFi), particularly in illiquid markets.
The unfortunate trade was first brought to light by blockchain investigator ZachXBT on Sunday. According to on-chain data, the investor, whose wallet had been dormant since September 2020, swapped 14.4 million ADA tokens, worth around $6.9 million, for 847,695 USDA. USDA is a stablecoin native to the Cardano blockchain. The resulting difference amounted to a loss of roughly $6.05 million.
The primary reason for this substantial loss was the low liquidity available for the ADA/USDA trading pair. Liquidity refers to the ease with which an asset can be bought or sold without significantly affecting its price. In markets with low liquidity, even relatively small trades can cause large price swings, leading to unfavorable execution rates, especially for large orders. In this case, the large swap order likely resulted in significant slippage, meaning the investor received considerably less USDA than anticipated.
Before executing the large swap, the Cardano user appeared to make a test transaction of 4,437 ADA for a US dollar stablecoin. It is unknown whether the user intended to buy the little-known stablecoin USDA, which has a market cap of just $10.6 million. Blockchain data indicates that the crypto trader had never previously held the USDA stablecoin before that transaction.
The incident also highlights the importance of carefully verifying transaction details before execution. Once a blockchain transaction is confirmed, it is irreversible.
Following the transaction, the price of ANZA, the governance token for Anzens, experienced a surge to nearly $1.26 before falling back to $1.04.
The Cardano community has reacted to this incident with discussions about user responsibility and the need for caution when trading in DeFi. Some have pointed out that while the loss is unfortunate, the transaction fees are absorbed by the Cardano network, benefiting its long-term development and security. Others have emphasized the importance of using hardware wallets and securing seed phrases to protect against potential losses.
This incident serves as a cautionary tale for cryptocurrency investors, particularly those new to the DeFi space. It underscores the need to understand the risks associated with illiquid markets, the importance of conducting thorough research before making trades, and the necessity of taking appropriate security measures to protect digital assets.
