The launch of Pudgy Penguin’s Solana-based token, PENGU, was meant to be a bonanza for holders, with its fully diluted market cap soaring to over $3.5 billion and generating over $290 million in trading volume within just two hours. However, for one unlucky trader, the event turned into a financial catastrophe.
In a matter of seconds, the trader saw $10,000 evaporate, leaving them with less than $5 worth of PENGU. The incident occurred just minutes before the official token launch when the trader attempted to swap 45 wrapped Solana tokens for PENGU. A combination of a quirk in the decentralized exchange aggregator Jupiter’s functionality and the trade’s unfortunate timing led to the disastrous outcome.
The trader, likely a “sniper” attempting to exploit the initial price volatility with automated trading bots, appears to have inadvertently interacted with an unofficial PENGU liquidity pool on Raydium. Due to extremely low liquidity in this pool, the PENGU token had an artificially inflated market capitalization of $14 trillion at the time of the trade.
This inflated market cap, coupled with the decentralized exchange’s “bonding curve” pricing mechanism, which increases token price with rising demand, resulted in a massive price swing. The trader experienced extreme slippage, where the execution price drastically diverged from the expected price.
While the existence of a liquidity pool prior to the official airdrop raises eyebrows, CoinGecko data reveals that the PENGU token and contract were created weeks in advance, in late November. A pseudonymous trader known as “crea” explained that leaked tokens likely allowed someone to establish a liquidity position early, enabling trading to commence prematurely. Crea also noted that the PENGU contract address was publicly known, and others likely experienced similar losses due to the inflated market cap. Crea doubts the trader was using a bot, suggesting they simply saw the token trading and acted impulsively without checking the market cap.
Ironically, Jupiter had warned users about potential scams and advised them to wait for the official launch, even disclosing the contract address in a social media post the night before.
