Opportunistic trader front-runs HydraDX’s Balancer LBP contract for $50,000

A cunning trader exploited Balancer’s LBP contracts to front-run HydraDX’s token offering for $50,000 before it officially launched.

Polkadot-powered decentralized exchange HydraDX has raised roughly $22.86 million in just the second public token sale offered using Balancer’s Liquidity Bootstrapping Pool, or LBP.

However, one opportunistic trader was able to front-run the offering by exploiting the fact that Balancer’s LBP contracts are deployed in “unpaused” status by default.

HydraDX is a substrate-based DEX that will use a single “omnipool” to drive automated market-making on the platform. The LBP offered Ethereum-based xHDX tokens that can be redeemed later for Hydra’s native HDX token.

The LBP is designed to offer a mechanism for crypto projects to conduct fair launches that seeks to address the strategies traders were using to exploit Initial DEX Offerings, or IDOs, to gain an advantage over other participants.

Despite attempting to ensure a fair distribution of tokens, one participant was able to front-run the offering anyway and purchase $50,000 worth of HDX before the sale had officially commenced.

HydraDX explained on Twitter that Balancer LBP contracts are deployed as “unpaused” by default, allowing a cunning trader to front-run the contract before it was paused by a single block. The team stated:

“This incident does not really matter. It is possible that the price paid was too high. In the LBP, being first doesn't necessarily mean having the best price. On the contrary, since at the beginning the price is falling, it could be expected that without constant extreme buying pressure the price will fall.”

Balancer LBPs use a combination of a free-floating price, time limit, and constant selling pressure to structure an offering so that a token’s price will continually drop in the absence of demand. The token sale template also allows issuers to launch a pool while providing a relatively small share of one side of a pairing — such as HydraDX’s xHDX token in the HDX/ETH pairing. 

Hydra’s LBP ran for three days, with 87% of its pool being sold to 5,274 wallets. On Twitter, Hydra noted the offering saw 25% more unique participants than contributed to Polkadot’s 2017 ICO.

On Feb. 11, HydraDX co-founder Jakub Gregaus tweeted that the xHDX/DAI pool had ranked as the highest volume pool on Balancer.

However, Hydra’s suggestion that the price of its token would fall throughout the offering proved untrue, with HDX steadily gaining from an early low of $0.034 to close above $0.08.

HydraDX LBP price chart: HydraDX 

HydraDX stated that all funds raised through the LBP will be used to establish liquidity for its protocol, noting the project’s development will continue to be funded by its investors. 15% of HDX’s supply has been allocated to its founders, employees, advisors, and investors.