As Elon Musk and other great entrepreneurs have learned, you have to blow up a couple rockets on the launchpad before you get one into space.
LZRD Token was launched 11 days ago with a totalSupply cap of 666,666 LZRD and a public claim function that allows any unique address to claim 69.420 LZRD. The tokens have been claimed by over 100 unique addresses as of this blog post.
https://etherscan.io/token/0xb17d0486bae7e5a7becfa366fd1cc83898c44838
But these publicly claimable tokens to date had no real world value. “They’re just like Chuck E. Cheese tokens!” the critics kept saying. Not for long. After much analysis of the LZRD tokenomics, a clear opportunity presented itself. With LZRD’s capped supply there could only ever be 9,603 claims from the contract before fully exhausting the airdrop (few understand this). And given the clear future demand the world would have for LZRD I thought it would be an interesting experiment to create a Uniswap liquidity pool for LZRD<=>ETH, thus assigning a real-world market value for LZRD and building a bridge into the global economy.
When you create a Uniswap liquidity pool you are tasked with setting the initial exchange rate between LZRD and ETH. This can be any value you choose, and is determined by the initial liquidity you seed the pool with. I seeded the pool with 0.1 ETH and 69.42 LZRD setting an exchange rate of 1 ETH = 694.2 LZRD or 1LZRD ~$2.00 . This meant that anyone who had claimed their previously valueless LZRD now had $138. The Lizard gods giveth.
https://etherscan.io/tx/0x4a9eb46efae7320353c425060efdd42deac50b167ce32a506bbb3e174609fe26
Other Lizards, seeing the investment opportunity, began adding liquidity to the pool to the point where we had 0.6 ETH and ~$800 of total liquidity in a matter of minutes and the burgeoning LZRD economy was off to a fantastic start. The world was starting to believe. But that is when disaster struck.
What Happened
At around midnight last night, a malicious bot contract began claiming LZRD tokens from the token contract and swapping them into the liquidity pool for ETH, draining the pool of it’s ETH and crashing the market price of LZRD.
https://etherscan.io/address/0x7a250d5630b4cf539739df2c5dacb4c659f2488d
The bot drained ETH from the pool until it was no longer profitable to do so, exploding the LZRD economy on the launch pad. The Lizard gods taketh away.
A war room of Lizards was assembled to address the crisis.
The council decided that we needed to employ the nuclear option of a total and complete shutdown of all LZRD token transactions until we could figure out what was going on. Since there was no way to pause the claiming of LZRD in the token contract, the decision of the council was to channel our inner Weimer Germany and mint 666,000,000 new LZRD and seed the liquidity pool with it, making the 69.42 LZRD from the public claim worthless and completely routing around Sam’s bot army.
The new LZRD were minted and sent into the liquidity pool, crashing the LZRD<=>ETH exchange rate down to 1LZRD=$0.0006. The plan was then to slowly start sending ETH back into the pool to raise the LZRD price when disaster struck again.
One Lizard swapped 0.25 ETH into the pool at the artificially low exchange rate, returning himself 651.23 million LZRD in the process. We had a new LZRD whale. Organic protests began springing up about the wealth inequality in the LZRD economy and at the risk of a full populist revolution, the new oligarchs agreed to burn their LZRD tokens to restore faith in the ecosystem. However, it was at that moment that a bug was discovered in the token contract preventing the tokens from being burned and spawning conspiracy theories about whether the bug was intentional and what exactly Lynn de Rothschild was doing at the time of the contract deployment.
Now facing our third financial crisis in a matter of hours, and completing the speed run of European financial history. It was decided that the only way to fix the mess we were in was to create a new LZRD V2 token that could have additional features, proper governance, and be airdropped to the original LZRD V1 hodlers.
Lessons
Setting a high initial exchange rate of $2 for LZRD was in retrospect a mistake. It opened the opportunity for malicious arbitrage bots to come in and snipe our nascent project.
Future liquidity pools should be seeded with a lower initial exchange rate to let the economy evolve organically.
Someone suggested using a balancer pool to allow us to control the exchange rate of future liquidity pools, which seems like an idea worth exploring.
https://docs.balancer.finance/smart-contracts/smart-pools/concepts
Others have suggested using KYC mechanisms (proof of hiss) for claiming LZRD tokens which seems like another promising path to pursue.
Time will show that Lizard V2 will come back stronger and the bot that exchanged 69.42 LZRD for 0.1ETH will one day be remembered the same way the person who payed 10,000 BTC for a mere 2 pizzas will be as he cries into his robot pillow and wonders what could have been.
Onward 🚀