DeFi lending platform Aave sees a rare $27 million liquidations after a price glitch

About $27 million worth of borrower positions were liquidated on the decentralized lending platform Aave on March 10, according to data from risk firm Chaos Labs.

“DeFi lending platform Aave sees a rare $27 million liquidations after a price glitch The blockchain data flagged shows a spike in liquidations over the past 24 hours”

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Blockchain data flagged a spike in liquidations over the past 24 hours.

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Some observers believe the event may have been linked to a temporary discrepancy in the price of wstETH relative to ETH reported by Aave’s risk-oracle, which appeared lower than the market ratio at the time.

Observers and on-chain posts singled out wstETH, the Lido-issued token representing staked ether that typically trades slightly above ETH because it accrues staking rewards.

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, according to a post from LTV Protocol on X.

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Volume remained relatively low for wstETH trading pairs, with just $10 million being traded over the past 24 hours, so it is unlikely any traders capitalized on the pricing mismatch before it snapped back.

Chaos Labs later said the underlying risk-oracle itself reported the correct market values and that 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.

“DeFi lending platform Aave sees a rare $27 million liquidations after a price glitch The blockchain data flagged shows a spike in liquidations over the past 24 hours”

@coindesk

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.

That effectively caused the protocol to treat wstETH as about 2.85% less valuable than it actually was and pushed some borrowing positions below their safety thresholds, triggering liquidations.

Chaos Labs said the protocol incurred no bad debt, though liquidators captured roughly 499 ETH in liquidation bonuses and profits from the temporary price discrepancy.

Omer Goldberg, the CEO of Chaos Labs, posted on X that "Risk oracles are critical infrastructure for Aave and have secured hundreds of billions in loans, liquidations, and markets since go-live. They allow the protocol to receive streaming risk parameter updates, to navigate dynamic, volatile markets," and added "Every affected user will be fully reimbursed."

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Stani Kulechov, the founder and CEO of Aave Labs, said in a post on X that there "was no impact to the Aave Protocol."

A Lido contributor told CoinDesk, "We are aware of the liquidations due to an incorrect wstETH to USD price reported by this oracle mechanism. The cause has nothing to do with wstETH itself, how it works or the Lido protocol which continue to operate normally."

The article also notes a recent similar incident where a misconfigured oracle at Moonwell briefly valued cbETH at about $1 instead of roughly $2,200, leaving the protocol with nearly $1.8 million in bad debt.