$26m mistakenly liquidated due to Aave fork gone awry
An Aave clone operating on the Blast network experienced a catastrophic event when it mistakenly altered its liquidation threshold, resulting in the liquidation of user positions valued at over $26 million.
Pac Finance, a decentralized finance (defi) lender that is a variation of Aave and operates on Coinbase’s layer-2 chain Blast, attempted to modify its loan-to-value (LTV) parameters on April 11. However, the Aave clone unintentionally lowered its liquidation threshold.
Consequently, all Ether-collateralized (ETH) positions on the platform were wiped out. According to Will Sheehan, the Founder of block explorer Parsec, one user suffered losses of up to $24 million as a result of the Aave clone’s error on Blast. On-chain analytics also revealed that participants experienced losses amounting to thousands of dollars in ezETH.
Pac Finance eventually admitted its mistake and confirmed that it had reached out to the affected users. The team also stated that they were working on a plan to address the error.
To prevent similar incidents in the future, Aave announced its intention to establish a community forum to facilitate discussions on future upgrades and changes to its defi lending protocol. Pac Finance also plans to deploy a governance contract to enhance transparency and restore user confidence.
Stani Kulechov, the Founder of blockchain developer Avara and the parent company of Aave’s project, tweeted that this incident highlighted a fundamental issue with protocol spin-offs.
The lending market is a significant sector within the defi space, enabling users to borrow and provide liquidity to the growing crypto ecosystem. According to DefiLlama, lending protocols currently hold a total value locked (TVL) of nearly $35 billion.
Aave is the dominant player in this market, boasting a TVL of $11.5 billion and operating across 12 chains, including Ethereum, Arbitrum, Polygon, Optimism, Avalanche, Gnosis, Base, Metis, Binance Smart Chain, Scroll, Fantom, and Harmony. Additionally, Aave has introduced its stablecoin GHO as a competitor to Maker’s DAI token on Ethereum’s blockchain.
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