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【Observation】IDO Initial DEX Offering fundraising opens! Governance token BZRX targeted, how to make a profit of 500,000 euros in half an hour?

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【Observation】IDO Initial DEX Offering fundraising opens! Governance token BZRX targeted, how to make a profit of 500,000 euros in half an hour?

The lending platform bZx was recently targeted by an attack on its governance token BZRX during its launch on Uniswap, where an anonymous individual exploited price discrepancies to profit nearly $500,000. Another DeFi project, mStable, which was planning to issue its governance token MTA today, had to halt its token issuance plans last minute to avoid being targeted and is now reevaluating its token issuance strategy.

To understand this article, you may need to know:
bZx – a decentralized lending protocol for margin trading
BZRX – the governance token issued by bZx
IDO – Initial DEX Offering, the first token issuance through a decentralized exchange
mStable – a project planning to distribute tokens through liquidity mining

BZRX conducted its initial token offering through Uniswap, known as an Initial DEX Offering (IDO). The difference between IDO and ICO is that in an ICO, the investment price is fixed, and investors simply send funds to the project's wallet address and wait for the tokens to be distributed, while in an IDO, due to the automatic pricing model, trading begins immediately after the IDO starts, causing token prices to fluctuate. It can be understood as "fundraising is the opening bell."

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This characteristic has led to numerous issues with IDOs on Uniswap, as evidenced by the recent token issuance problems faced by BZRX.

The BZRX Incident: A Closer Look

Within less than 60 seconds of BZRX opening a BZRX/ETH liquidity pool on Uniswap, the price of BZRX immediately skyrocketed from the initial listing price of 0.0002 ETH to 0.0024 ETH, a 12-fold increase. While this may seem like a victory for early investors in the Initial DEX Offering (IDO), it turned out to be the beginning of a disaster.

According to the prevailing market narrative, as the BZRX/ETH liquidity pool contract was broadcasted on the Ethereum blockchain, a bot created by an anonymous individual detected the contract deployment and swiftly initiated a 650 ETHpurchase transaction. Ultimately, the BZRX/ETH liquidity pool contract and the 650 ETH purchase transaction initiated by the anonymous individual were packaged in the same block, allowing for the acquisition of the cheapest chips.

Source: Roman Storm

Simultaneously, this led to the price of BZRX surging from the initial $0.04 to $0.15. According to Roman Storm, founder of Peppersec, these bots not only managed to enter early and acquire tokens but may have also been sending junk transactions on the network to block others' transactions.

In less than 5 minutes, as the team officially announced the opening of the Uniswap pool on Discord and Twitter, the price had already reached around $0.6. At this point, investors entering the market became targets of this anonymous individual, with investors becoming bagholders while the anonymous individual continuously unloaded the BZRX acquired at low prices in batches.

Eventually, after reaching a high of $0.6, the token price has now stabilized around $0.14. In this operation, the anonymous individual reportedly profited nearly half a million dollars.

Internal Team Members Suspected

Another theory circulating in the market suggests that the reason the BZRX/ETH liquidity contract deployment and the 650 ETH purchase transaction were packaged in the same block is that both transactions were initiated by the project team. Allegations suggest that the team bought a large amount of BZRX early from the liquidity contract to inflate the price, artificially boosting BZRX's total market value to over $60 million.

The argument here is that having both transactions initiated to be packaged in a block simultaneously is not an easy feat, and such operations do not guarantee profits.

If there is not enough buying pressure in the market, purchasing a large amount of BZRX may eventually lead to forced liquidation at a loss. From this perspective, the project team indeed has the motive and capability to carry out these operations effortlessly. However, these are all speculations, and there is no concrete evidence to prove unequivocally that it was the project team's internal members behind these actions.

mStable Rethinks Token Issuance Plan

This incident has sparked a debate on the openness and fairness of Initial DEX Offerings (IDOs): can open protocols truly create a fair fundraising or investment environment?

If other projects continue to issue tokens through IDOs, they are likely to become targets as well. Therefore, mStable, another DeFi project set to issue tokens on Balancer today using the same method, postponed its token issuance plan to avoid being targeted and is reevaluating the token issuance plan. In the latest press release, the official statement reads:

"A new article will be released in the next 24-48 hours announcing a better and fairer method for MTA issuance. This method will prevent frontend intervention by bots, strengthen long-term incentives for MTA holders, and create a deeper and more flexible MTA trading market."