A configuration error in the risk-oracle system used by crypto-lending platform Aave led to the liquidation of nearly $27 million in staked Ether (wstETH) positions, prompting the protocol to move to compensate affected users.
In a postmortem published on Tuesday, Aave said that approximately 10,938 wstETH worth approximately $27.1 million were liquidated after applying an exchange rate that was 2.85% lower than the live rate for wstETH and that Lido contributed Ether.
The problem was caused by a mismatch between the snapshot ratio and snapshot timestamp in Capo’s risk-oracle configuration, which caused the system to calculate the maximum allowed exchange rate below the actual onchain rate.
Aave said that the incident did not create any bad debt for the protocol, but the liquidators captured about 499 Ether (ETH) in bonuses and value related to the price deviation.
Chaos Risk Oracles is an external tool used internally by Aave that has processed more than 1,200 payloads and 3,000 parameters without issue, Aave founder and CEO Stany Kulechov said in a Wednesday X message.
“The configuration issue has already been resolved,” Kulechov said, adding that “a technical misconfiguration led to the cancellation of tasks that were already close to cancellation.”
He said that the Aave protocol had no bad debts and that a total of 345 Ether ($700,000) went to the liquidators as a liquidation surplus.
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Aave to compensate lost users
Aave said that it will use 141 ETH ($285,000) of liquidation bonus proceeds through refunding BuilderNet and another 13 ETH in liquidation fees, which will be used to compensate affected users who were liquidated as a result of the incident. The DAO’s treasury funds are used to cover any shortfalls.
This event adds to the broader review of collateral pricing and oracle-related risk controls in decentralized financial lending markets. In late February, attackers drained nearly $10 million from the YieldBlox DAO’s lending pool built on the Blend protocol through a price manipulation attack.
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The liquidation also comes at a time of tension within the Aave ecosystem following the Aave Chan Initiative’s decision earlier this month to extend its partnership with The DAO.
ACI noted concerns about governance standards and voting dynamics during the proposal process. In response to the governance debate, Kulechov said that DAOs should reconsider the weight of token holders’ votes compared to the input of executives.
Kulechov argued that token holders should not vote on everything, as running blockchain protocols requires a team and leaders, not thousands of votes, which can lead to political or ineffective governance efforts.
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