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How someone used a flash loan and loose airdrop to claim $1.1 million APE tokens

The Block | Vishal Chawla | Mar 18, 2022

NFT apes - How someone used a flash loan and loose airdrop to claim $1.1 million APE tokensYesterday, Yuga Labs, the creators of Bored Ape Yacht Club (BAYC), airdropped ApeCoin (APE) to anyone who owns one of their NFTs.  The team allocated 150 million tokens or 15% of the total ApeCoin supply to holders of Bored Ape Yacht Club and Mutant Ape Yacht Club collections, amounting to a staggering value of more than $800 million. Each BAYC holder got 10,094 tokens, valued anywhere between $80,000 to $200,000.

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But someone found a way to claim the airdrop, using NFTs that they did not initially own. They took advantage of the specific way the airdrop works to carry it out. And it was a very effective move that netted them $1.1 million in ApeCoin.

The trick was that the ApeCoin airdrop was not handed out based on a snapshot of who owned which Bored Ape at a specific time in the past. Instead, it was claimable by anyone who owns a Bored Ape at the point of claiming the airdrop. So if you gave someone your Bored Ape — and you hadn’t already claimed the tokens — they would be able to claim your tokens.

How did this happen?  Was it an attack or arbitrage?

So they used a flash loan, a tool commonly used for large DeFi hacks, to carry out this plan. Flash loans are a way to borrow large amounts of crypto at low cost, on the basis that the crypto is repaid in the same transaction in the same block (meaning that the funds are never at risk of not being repaid).

In this case, they bought a Bored Ape on NFT marketplace OpenSea for under $300,000 and used it as collateral to take out the flash loan. The flash loan was then used to purchase a large amount of the vault’s token, letting them redeem the five NFTs. The NFTs were used to claim the airdrop — all in this one, complex transaction — before all of them were then returned, the tokens sold back and the loan repaid.

See:  Is Open Sea doing enough to combat NFT fraud?

Even though many social media commentators hailed the incident as an innovative arbitrage trade, security firm BlockSecTeam disagreed. It has labeled this as an attack that exploited an issue in the airdrop-claiming mechanism.

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