Aave encounters a $26 million liquidation issue due to an oracle misconfiguration affecting its wstETH positions.
Aave, a leading DeFi protocol, faced a significant issue on March 10 when an oracle misconfiguration led to liquidations of wstETH token positions totaling around $26 million.
The root of the problem was a malfunction in the Correlated Asset Price Oracle (CAPO), which is designed to safeguard the protocol against price volatility. Chaos Labs reported that the oracle incorrectly recorded the price of the asset at 1.1939, while the actual value was 1.228 due to desynchronization of data.
This error stemmed from a mismanagement during an update, where the system attempted to modify the quotes simultaneously, ignoring a smart contract limitation that permits only a 3% increase every three days. Consequently, the protocol's exchange rate experienced a decline of 2.85%, prompting a wave of liquidations.
The failure impacted 34 accounts and resulted in the enforced sale of 10,938 wstETH. External liquidators took advantage of the situation, securing about 499 ETH in profits. However, Chaos Labs assured that this incident did not place Aave in a precarious financial position.
The Aave team quickly addressed the issue by reducing the borrowing limits for wstETH and adjusting the oracle settings. They are now developing a compensation plan to reimburse affected users, utilizing 141.5 ETH recovered post-incident and an additional 345 ETH from the DAO treasury. Although the incident highlighted a configuration conflict, the core architecture of the oracle remains intact.
In related news, Aave had recently achieved a significant milestone, surpassing $1 trillion in total loan volume in February, marking a first for the decentralized finance space.
