About $27 million was liquidated on decentralized lending platform Aave over the past 24 hours in what some market participants say may have been caused by a temporary price issue involving the wstETH token.
Blockchain data flagged by risk management firm Chaos Labs shows an increase in liquidations in the past 24 hours. Some observers believe the event may have been linked to a price update in an oracle system that Aave uses to determine the value of collateral.
Oracles are services that feed price data from the outside world into blockchain applications. Lending protocols like Aave rely on them to decide when a borrower’s collateral is no longer sufficient to cover their loan – at which point the position can be liquidated.
While such scenarios are rare, a price oracle setup misconfigured by DeFi lender Moonwell briefly valued Coinbase Wrapped ETH (cbETH) at around $1 instead of around $2,200, leaving the protocol with nearly $1.8 million in bad debt.
In Aave’s case, some say the problem may have involved wstETH, a token issued by Lido that represents staked ether. Because it earns stake rewards over time, one wstETH is typically worth a little more than one ETH.
According to a post from LTV Protocol on X, at the time of the liquidations, Aave’s oracle appeared to value wstETH at around 1.19 ETH, while the broader market valued it closer to 1.23 ETH.
Volume remained relatively low for wstETH trading pairs, with only $10 million traded in the last 24 hours, so it’s unlikely that any savvy traders took advantage of the price mismatch before it reversed.
An Aave spokesperson did not respond to CoinDesk’s request for comment.
Earlier in the day, venture firm LlamaRisk briefly published a post on the AAVE forum in which the liquidators attributed a problem with Chaos Labs’ risk oracle, before deleting it.
Chaos Labs later said that the underlying oracle itself reported the correct market values and that the liquidations were instead triggered by a configuration issue in the protocol’s CAPO risk oracle, which is designed to set limits on how quickly the value of yield-bearing tokens such as wstETH can increase.
According to Chaos Labs, the incident was caused by a mismatch between outdated parameters stored in a smart contract, including a reference rate and its associated timestamp. Because these values were not updated synchronously, the CAPO system temporarily calculated a maximum allowed exchange rate that was lower than the real market value of wstETH.
That effectively caused the protocol to treat wstETH as roughly 2.85% less valuable than it actually was, pushing some loan positions below their safety thresholds, triggering liquidations.
Chaos Labs said the protocol did not incur any bad debt, although liquidators — traders or bots that repay risky loans in exchange for discounted collateral — captured about 499 ETH in liquidation bonuses and profits from the temporary price difference.
A Lido contributor told CoinDesk, “We are aware of the liquidations due to an incorrect wstETH to USD price reported by this oracle mechanism. The reason has nothing to do with wstETH itself, how it works or the Lido protocol, which continues to function normally.”
Oliver Knight contributed reporting to this story.
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