The external Capo oracle used by the Aave protocol triggered liquidations of approximately $27 million after a pricing calculation failure. However, the platform stated it will cover users’ losses.
A configuration error in the risk oracle system used in the Aave lending system led to the liquidation of positions in wrapped staked Ether (wstETH) totaling about $27 million. After the incident, the protocol announced its intention to compensate affected users for their losses.
In an incident review published Tuesday, Aave reported that about 10,938 wstETH worth approximately $27.1 million was liquidated. This occurred after the system used an exchange rate that was 2.85% below the current market price for wstETH and staked Ether from the Lido protocol.
The problem arose due to a mismatch between pricing parameters and timestamps in the oracle configuration. As a result, the system calculated the maximum allowable rate below the actual network value.
According to Aave, the incident did not result in bad debt for the protocol. However, liquidators received about 499 ETH in bonuses and profits related to the price deviation.
The Chaos Risk Oracles tool, used in the Aave ecosystem, processed over 1,200 update operations and about 3,000 parameters without any failures. This was reported by founder and CEO Aave Stani Kulechov in a post on X on Wednesday.
According to him, the liquidations occurred due to a technical error in the system configuration. As a result, positions that were already close to the liquidation threshold were closed. Kulechov noted that the configuration issue has already been resolved.
He also emphasized that the Aave protocol did not incur bad debt. At the same time, liquidators received about 345 ETH, approximately $700,000, as additional profit from the liquidations.
Aave to Compensate Users for Liquidations
According to Aave, the protocol managed to recover part of the funds after the incident. Through BuilderNet refunds, about 141 ETH, or roughly $285,000, was received from liquidation bonus proceeds. Another 13 ETH came in as liquidation fees. These funds will be used to compensate users whose positions were liquidated due to the glitch. If this amount is insufficient, the shortfall will be covered from the DAO treasury.
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The incident has once again drawn attention to collateral valuation issues and oracle-related risks in DeFi lending. At the end of February, attackers withdrew about $10 million from the YieldBlox lending pool managed by DAO. The attack was based on the Blend protocol and involved price data manipulation.
Governance Conflict in Aave Intensifies After ACI Departure
The liquidation incident occurred amid tensions within the Aave ecosystem. Earlier this month, the Aave Chan Initiative (ACI) announced it would not renew its collaboration with the DAO.
ACI explained its decision by citing issues with governance standards and the proposal voting process.
Commenting on the situation, Stani Kulechov stated that decentralized organizations should reconsider the balance between tokenholder votes and project leaders’ opinions.
According to him, tokenholders should not vote on every issue. Managing blockchain protocols requires teams and leaders, not thousands of votes that can turn governance into a politicized or ineffective process.
