SnowdogDAO (SDOG), the first memecoin to launch on Avalanche, lost more than 90% of its value yesterday in what many consider to be the platform’s largest rug pull
SnowdogDAO (SDOG), the first memecoin to launch on Avalanche, lost more than 90% of its value yesterday in what many consider to be the platform’s largest rug pull.
Despite the loss of millions of dollars in investments, the SnowdogDAO team argues that the event was a “game-theory experiment” gone wrong.
Insiders exploit a token designed to prevent front running
SnowdogDAO, a decentralized reserve memecoin based on Avalanche, crashed and burned yesterday after only 8 days in operation. SDOG, which began as an 8-day experiment and ended with a massive buyback, drew a lot of attention in the crypto community.
The developer team stated that the “game theory experiment” was intended to raise awareness about Snowbank.
“We believed that the combination of a decentralized reserve meme coin that would die after 8 days, with the perspective of a giant buyback would create interest and bring exposure to the Snowbank project.”
The grand finale of the program was to be a massive buyback financed by assets acquired by the Snowdog treasury through mint sales. The treasury market value increased to $44 million in 8 days, allowing holders to fight for a piece of the cash during the buyback.
What the developers failed to disclose to the community, or made clear enough, was that only 7% of the SDOG supply was eligible to be sold above market price prior to the buyback.
Snowdog established its own AMM based on Uniswap V2, moving all SDOG liquidity from Trader Joe, a popular Avalanche DEX, to avoid front running.
However, the buyback failed spectacularly within seconds of its launch, resulting in the loss of hundreds of users’ funds. By exchanging SDOG for other cryptocurrencies, a single address made nearly $10 million, removing a quarter of the treasury’s buyback power.
So $SDOG @SnowdogDAO just rugged $10.392+ Million in $MIM. https://t.co/jhmkeYMTHx pic.twitter.com/I5owBGO9Jw
— James (@JamesCliffyz) November 26, 2021
The address acquired about $180,000 worth of SDOG using MIM in $10,000 increments just before the buyback and then staked the token. They staked the monies the next day and were able to drain almost $10 million in MIM.
Using the identical approach, two other wallets managed to drain $7.7 million and $3.3 million, respectively.
To add 2 other wallets took $7.7 and 3.397 Million using the same strategy.
Wallet 2: https://t.co/ofdfixMhZf
Wallet 3: https://t.co/CZhtzUwN7z pic.twitter.com/GSunhRgFT0
— James (@JamesCliffyz) November 26, 2021
While the addresses’ owners have yet to be confirmed, many suspect they belonged to people with strong ties to the development team.
The postmortem of Snowdog reveals nothing
After receiving significant backlash from the crypto community, the Snowdog development team issued a postmortem. While the message was intended to clarify that the occurrence was not a rug pull, it failed to persuade the audience that the conduct was spontaneous.
According to the developers, they intended their AMM to be front-run by bots by introducing a basic mathematical challenge that is only available via the Snowbank front-end.
“A trivial compute once you know the requirements, but it would require manual intervention to adapt bots, therefore giving enough time for human interaction before bots could join the party,” they explained in the post. “It worked, as bots sent failed transactions one after the other.”
Users, however, stated that there was no way to accomplish the challenge because starting a Snowswap contract required a “challengeKey,” which nearly none of the users possessed.
@SnowdogDAO $SDOG rugpulled. Here’s how:
1. Promised a 40M buyback happening on its own DEX Snowswap and migrated all liquidity from Joe
2. Snowswap contract requires a “challengeKey” to trade which only insiders knew it beforehand
3. Insiders backran the buyback and made 10M pic.twitter.com/tfKDqA4t4I
— TechnoArtoria (🦇,🔊) (@artoriamaster) November 25, 2021
Snowdog claims that they were only liable for the issue since they failed to reveal the game’s rules:
“We understand that the buyback experience created frustration as only 7% of the supply holders would benefit from a price superior to the market price before the buyback. We deeply regret not having communicated more on this. We should have warned the community about the risks that waiting for the buyback to sell represented.”
Users who were unable to sell their SDOG, which have since lost more than 90% of their value, will be allowed to generate some of the tokens. According to Snowdog, further use for the token will be provided on Snowbank, including SDOG-MIM minting, SDOG-MIM liquidity, Trader Joe listing, and DAO governance.
