About $27 million was liquidated on the decentralised lending platform Aave during the 24 hours ending Tuesday. Some market participants say the liquidation may have been caused by a temporary pricing issue involving the token, wstETH.
Blockchain data flagged by risk-management firm Chaos Labs shows a spike in liquidations. Some observers believe the event may have been linked to a price update in a risk oracle system that Aave uses to determine the value of collateral.
Oracles are services that feed price data from the outside world into blockchain applications. Lending protocols like Aave rely on them to decide when a borrower’s collateral is no longer sufficient to back their loan – at which point the position can be liquidated.
While such scenarios are rare, most recently, a price-oracle setup misconfigured by DeFi lender Moonwell briefly valued Coinbase Wrapped ETH (cbETH) at about $1 instead of roughly $2,200, leaving the protocol with nearly $1.8 million in bad debt.
In Aave’s case, some say the issue may have involved wstETH, a token issued by Lido that represents staked ether. Because it accrues staking rewards over time, one wstETH is typically worth slightly more than one WETH.
According to a post from LTV Protocol on X, at the time of the liquidations, Aave’s risk oracle appeared to value wstETH at roughly 1.19 ETH, while the broader market valued it closer to 1.23 ETH.
Volume remained relatively low for wstETH trading pairs, with just $10 million being traded over the past 24 hours, so it is unlikely any astute traders capitalised on the pricing mismatch before it snapped back.
Stani Kulechov, the founder and CEO of Aave Labs, said in a post on X that there “was no impact to the Aave Protocol”.
Chaos Labs later said the underlying risk oracle itself reported the correct market values and that the liquidations were instead triggered by a configuration issue in the protocol’s CAPO risk oracle, which is designed to place limits on how quickly the value of yield-bearing tokens such as wstETH can increase.
According to Chaos Labs, the incident was caused by a mismatch between stale parameters stored in a smart contract, including a reference exchange rate and its associated timestamp. Because those values were not updated in sync, the CAPO system temporarily calculated a maximum allowed exchange rate that was lower than the real market value of wstETH.
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