From theblock by Daniel Kuhn
Like many airdrops and token generation events, the launch of Pudgy Penguin’s Solana SOL +0.94%-based token, PENGU-54.68%
, has been a windfall for many. Just two hours after debuting on Tuesday, the token has rocketed to a fully diluted market capitalization of over $3.5 billion and garnered more than $290 million worth of trading volume.
In other words, the PENGU launch is “free money” for many fans and speculators of the famed Pudgy Penguin NFT series. But not everyone will walk away from the event in profit.
Onchain data shows that one unlucky trader looking to capitalize on the buzzy airdrop managed to turn $10,000 into less than $5 in a matter of seconds. At 12:54 UTC, about five minutes before the token dropped, a trader placed an order to swap over 45 wrapped solana tokens for PENGU tokens. Unfortunately, due to a quirk in how decentralized exchange aggregator Jupiter JUP -4.18% works and the timing of the trade, he only received 78 PENGU tokens — worth less than $3 at press time.
Although it is unclear who has been bestowed this great penguin-related misfortune, it appears that the unlucky trader was able to locate the PENGU token address prior to launch. These types of traders, often referred to as “snipers,” use automated trading bots to try to capture the lowest prices immediately following an airdrop.
However, because his trade was placed before the token was officially released, it appears to have been routed to an unofficial PENGU liquidity pool on Raydium, which gave him an inflated price due to low liquidity. At the time the trade was executed, PENGU had an artificially inflated market cap of $14 trillion due to the low circulating supply.
Decentralized exchanges typically set prices using a “bonding curve,” a mechanism that increases the price of a token as demand grows. But when liquidity is low, even small trades can cause wild price swings, making the market less predictable and riskier and causing slippage, where the execution price diverges from the expected price of an asset.
While it is suspicious that someone was able to spin up a liquidity position prior to the official PENGU airdrop, the actual PENGU tokens and the contract were created in late November, several weeks ahead of the official airdrop, according to CoinGecko.