SnowdogDAO SDOG, the first memecoin to launch on Avalanche, lost 90% of its value yesterday in what many believe is the platform's largest rug pull.
The SnowdogDAO team maintains that the event was not a rug pull, but a game-theory experiment gone wrong, despite millions of dollars lost in investments.
SnowdogDAO, a decentralized reserve memecoin based on Avalanche, failed spectacularly yesterday after being live only 8 days. SDOG, which was started as an 8 day experiment that was scheduled to end with a giant buyback, attracted a lot of attention in the community.
The game theory experiment was created by the development team to create awareness for Snowbank.
The giant buyback was to be financed by the Snowdog treasury's assets through mint sales, which would be the pinnacle of the experiment. In 8 days, the treasury market value grew to $44 million, which meant that holders were able to compete for a portion of the funds during the buyback.
The developers didn't disclose to the community, or at least didn't make it clear, was the fact that only 7% of SDOG supply was eligible to be sold above market price before the buyback.
Snowdog created its own AMM based on Uni swap V2 to bring all of the SDOG liquidity from Trader Joe, a popular Avalanche DEX.
The buyback failed spectacularly within a few seconds of launch, with hundreds of users losing most of their funds. A single address was able to make almost $10 million by swapping SDOG for other cryptocurrencies, removing a quarter of the treasury's buyback power.
Before the buyback, the address bought around $180,000 worth of SDOG with MIM in batches of $10,000 and then staked the token. A day later, they staked the funds and were able to drain $10 million worth of MIM, a day later.
Two other wallets were able to drain $7.7 and $3.3 million using the same strategy.
While the owners of the addresses are yet to be identified, many believe that they most likely belong to people closely connected to the development team.
After suffering a major blowback from the community, the development team behind Snowdog came out with a postmortem. While the post was meant to clarify that the event wasn't a rug pull, it failed to convince the public that the action wasn't pre-planned.
The team said they designed their AMM so that it can be front-run by bots by introducing a simple mathematical challenge that is only available from the Snowbank front-end.
Users reported that there was no way to solve the challenge, as a challengeKey required a Snowswap contract, which almost none of the users had.
Snowdog maintains that they were responsible for the situation only through their failure to disclose the rules of the game:
Users that weren't able to sell their SDOG, which have lost 90% of their value, will still be able to make some of the token. Snowdog said that more utility will be provided for the token on Snowbank, which includes SDOG-MIM minting, SDOG-MIM liquidity, Trader Joe listing, and DAO governance.