Due to an oracle misconfiguration in Aave v3, automated smart contracts erroneously flagged thousands of wstETH positions as undercollateralized.
Due to the error, the price fell by 2,85%, resulting in the write-off of approximately 10,938 wstETH in E-Mode across 34 user accounts. This led to a massive liquidation of positions and losses of $26,4 million before the protocol was finally suspended. The Aave protocol itself suffered no losses due to the mispricing.
Omer Goldberg, founder of Chaos Labs (Aave’s network security and risk management partner), wrote on social media that the incident had no impact on the Aave protocol and that all affected users would receive full compensation. He also added that the team is working on a solution to prevent similar incidents from recurring.
According to the security platform, the likely cause of the price estimation error was various upgrade restrictions at the smart contract level, which ultimately led to a discrepancy between the blockchain timestamp and the conversion factor.
According to Chaos Labs, the off-chain mechanism attempted to change the snapshot ratio to 1,2282. However, a security constraint on the blockchain prevented the 3% threshold from being exceeded within 72 hours.
Token AAVE’s price fell 2,4% following news of the outage, but recovered almost immediately. This muted reaction to the $26 million liquidation is likely due to the speed and precision of the protocol’s team.