Hi everyone, as an unexpected mini-follow up to my recent series, I wanted to share another update on synthetic Illuvium. See part 1 and part 2 for more information on my sILV perspective. As of now, most of my strategies mentioned last week are no longer valid for a simple reason - lack of public liquidity.
UPDATE 14 Oct 2021 4 AM UTC - The liquidity seems be coming back but on version 3 of Uniswap versus version 2. See the analytics here: https://v3.info.uniswap.org/home#/tokens/0x398aea1c9ceb7de800284bb399a15e0efe5a9ec2
In the past two days, the liquidity available in the Uniswap pool has dropped by about 90% as four large “poolers” withdrew their liquidity. I can speculate as to why, but potential reasons include that they have other plans for their sILV (cough, buy land, cough) and the swap fees no longer justify the potential 10%+ impermanent loss that may occur in the next month. I predict the sILV price may (and should) increase to become equal to the value of ILV for the land auction.
With this removal of liquidity and the lack of liquidity elsewhere (Sushi pool remains quite small), several new risks are highlighted. A friend of mine identified a bot utilizing the Uniswap pool to sandwich attack transactions, costing swappers value by frontrunning their transactions. Here’s an article to learn more about this manner of attack, but basically, the bot scans for transactions, submits a transaction with a higher priority through transaction fees to conduct a swap ahead of the victim, increasing and profiting from the change in slippage. Below are diagrams of this action from the linked blog post.
You can scan your wallet address here to see if you have been the victim of a sandwich attack.
With the significantly reduced liquidity, slippage would already inherently be higher, so please swap with caution to avoid the natural slippage of a low liquidity pool, as well as knowing there’s a bot actively working to profit from swaps on the Uniswap sILV/ETH pair.
I’ll continue to monitor these pools, and expect further action as the land auction plan crystalizes. As always, be safe out there!