Background
DeFi protocols get hacked all the time: Yearn, Pickle, Alpha, are among some of the more famous victims and this list goes on and on. Recently, DODO exchange, another AMM, also got hacked. Lucky for DODO, this was a white hat hacker who returned most of the funds. One of the main projects involved in this hack is CrescoFin and their token $WCRES. The token dropped over 50% before gradually recovering to down around 20% of its prehack levels.
AMA
In response to the hack, the CrescoFin team released a AMA where they addressed the hack and future plans for the protocol. Derek, one of the founders, claims "We will deploy an initial tranche of 200 ETH over the next 7-10 days and then evaluate the results." This is less than half of the total ETH received, and it seems they will market buy $WCRES in a TWAP manner.
Trade
I view this as a clean event trade with the fact that the price is around 20% off of the prehack price and the forced buy back. In that same message Derek states "We also believe that the organic buying from existing and new tokenholders will help fill some of the gap, or just shoot past the pre-hack level of $9/0.005ETH." He clearly believes that the token holders were wronged and seems like the team might use the additional 211 ETH to push the price to his targets if they are not reached with the first batch of buybacks.
Doing some quick back of the envelope calculations, on the WCRES/ETH pool, we see that there is only around 3.5 million in liquidity and close to 200k volume daily1. Market buying 200 ETH would create about 10% in price enhancement. Judging by the message above and being conservative, the team plans to market buy 20 ETH each day for 10 days. With ETH around 2k, this will create around 40k daily additional buy pressure; a huge portion of the total 200k traded volume. I expect $WCRES to increase during this period and am putting on this trade at around $7 and .004 WCRES/ETH.
- A decent amount of this volume is probably arbitrage bots going from the DODO WCRES/USDT pool to the Uniswap WCRES/ETH pool. ↩