Hassan Maishera
TL;DR
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DeFi protocol Aave experienced a glitch that caused 34 accounts to lose a combined $26 million in unfair liquidations.
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The team has assured affected users that they will be compensated.
Aave Suffers a Temporary Oracle Glitch
Aave, one of the leading DeFi protocols in the crypto space, experienced a temporary oracle malfunction on its Ethereum Core and Prime instances on March 10.
The glitch resulted in approximately $26 million worth of wstETH positions being unfairly liquidated.
The post-mortem from Chaos Labs, Aave's primary risk management provider, explained that the glitch stemmed from a misconfiguration in the Correlated Asset Price Oracle (CAPO). CAPO serves as a safety mechanism designed to prevent sudden price jumps.
Chaos Labs added that the issue came from an inconsistency between the snapshot ratio and the snapshot timestamp used for CAPO. This caused the oracle to report a capped exchange rate of roughly 1.1939 — well below the actual market rate of around 1.228 — leading to erroneous liquidations in E-Mode positions.
The report added that the inconsistency resulted from an offchain process oversight that did not account for an existing onchain constraint, according to the post-mortem.
"Operationally, our offchain process determined that the snapshot ratio should be updated to approximately ~1.2282, the appropriate value corresponding to the exchange rate 7 days earlier. However, the snapshot ratio parameter is subject to an onchain constraint: it can only be increased by 3% every 3 days … It was not possible to set it to ~1.2282 in a single update," the report added.
Chaos Labs explained that the glitch created a mismatch that caused a 2.85% decrease in the effective exchange rate used by the protocol, triggering the liquidation of roughly 10,938 wstETH.
The issue affected roughly 34 accounts, with the total value of unfair liquidations estimated at around $26 million.
Furthermore, third-party liquidators made approximately 499 ETH worth of gains from the glitch. However, Aave did not accrue bad debt from the incident.
Aave to Compensate Affected Users
Chaos Labs revealed that it intervened quickly by temporarily reducing wstETH borrow caps and manually aligning the snapshot parameters to restore the correct oracle value.
The team assured users that a compensation plan is underway, using 141.5 ETH recovered from the incident and up to 345 ETH from the DAO treasury to reimburse affected users.
The post-mortem report added that,
"Ultimately, this incident did not reflect a flaw in the underlying CAPO or offchain risk oracle design, but rather an onchain configuration misalignment under differing onchain update constraints that led the snapshot ratio and snapshot timestamp to become misaligned."
AAVE is down 2% in the last 24 hours and now trades at $109.39 per coin.
