On-Chain Frontrunning: $5.07M Profit from a $2.15M Liquidation

The core event was a precisely executed on-chain sequence that netted a $5.07 million profit from a $2.15 million shortfall. It began with a single address receiving 7,400 ETH from Tornado Cash and using it as collateral on Aave to borrow $9.92 million in stablecoins. These funds were then dispersed to purchase THE, setting the stage for the next phase.

The address deposited 36.1 million THE as collateral on Venus to borrow a mix of BTC, BNB, and CAKE. This move was immediately followed by a price manipulation, with the actor pushing up THE's price on a CEX to establish a favorable position. Within 40 minutes, the price collapsed as the actor closed longs and opened shorts, triggering the liquidation.

The forced liquidation of the 36.1 million THE collateral left Venus with a $2.15 million liquidation shortfall, comprising 1.18 million CAKE and 1.84 million THE. The address walked away with assets worth about $5.07 million from Venus, including 2,172 BNB, 151,600 CAKE, and 20 BTC. The profit came from the liquidation event itself, not the on-chain loan, as the actor used the price crash to extract value from the protocol's debt.

The Price Manipulation Play

The actor's strategy relied on a sharp, timed price move on a centralized exchange (CEX). Around 8 PM, they allegedly pumped THE's price on a CEX, likely to inflate its value before depositing 36.1 million THE as collateral on Venus. This manipulation created a favorable borrowing window by making the collateral appear more valuable.

Approximately 40 minutes later, the price collapsed. The crash was triggered by the actor closing their long positions and opening short positions on the CEX. This sudden sell-off drove THE's price down sharply, rapidly eroding the value of the collateral deposited on Venus.

The price drop directly triggered the forced liquidation of the 36.1 million THE collateral. The actor's profit came from two sources: the assets extracted from the liquidation event itself, and the gains from their short positions on the CEX, which were amplified by the protocol's forced sell-off.

Profit Extraction and Protocol Risk

The actor's direct on-chain profit was the $5.07 million in assets withdrawn from Venus, comprising 2,172 BNB, 151,600 CAKE, and 20 BTC. This represents a clean extraction of value from the protocol's liquidation mechanics. The operation also included a parallel profit from CEX short positions, which were amplified by the price crash triggered by the forced liquidation.

The $2.15 million shortfall left in the system is a direct loss to the Venus protocol. This liquidation shortfall of 1.18 million CAKE and 1.84 million THE constitutes bad debt that the protocol must absorb, eroding its capital and potentially impacting future lending rates or stability.

This event is a textbook case of how a large, coordinated actor can exploit the interplay between on-chain lending mechanics and off-chain price feeds. By manipulating the CEX price to inflate collateral value, then crashing it to trigger a liquidation, the actor turned a $2.15 million protocol loss into a $5.07 million profit. It highlights a critical vulnerability in protocols relying on external price data for risk management.