An Aave technical incident has been reported. A misaligned setting within the CAPO risk oracle caused the price of wstETH/stETH to drop almost 2.85% against the current market rate on Ethereum Core and Prime instances. This triggered a huge amount of liquidations, especially in E-Mode, cascading events affecting 34 accounts with roughly 10,938 wstETH in liquidation volume.
What Caused the Aave Technical Incident
The root cause of the Aave technical incident was a discrepancy in two different onchain parameters governing the CAPO rate-limiting system, leading to a miscalculation. The growth ratio of the maximum allowed price was increased every three days by 3% due to smart contract constraints; however, the snapshot timestamp was updated to reflect a seven-day-old reference point without validation against that constrained update path. As a consequence, this created a mismatch where the CAPO formula extrapolated growth from an anchor that was too low, producing a maximum rate (around 1.1939) below the actual exchange rate.
The erroneous pricing provided a maximum price that allowed liquidation of any position with a health factor under 1.0288. Liquidators within the Aave default protocol received approximately 116 ETH in bonuses for performing liquidations as a result of this incident (10938 wstETH in E-Mode) and had a total profit of 382 ETH from rom the underpricing of the oracle. Aave perceived no bad debt as a direct result of this incident.
Next Steps and Recovery
A reduction was made to wstETH borrow caps for the short term. The caps were temporarily set at 1 for impacted instances (to help contain risk). Risk Steward manually realigned the snapshot parameters, bringing the right oracle price into the snapshots. Aave has also recouped a total of 141.5 ETH from liquidations made through BuilderNet, used for reading the updated risk oracle.
Compensation for affected users: A plan for compensation is now underway. Recovered funds will be used partially to compensate impacted users, with any remaining covered by the Decentralized Autonomous Organization (DAO) treasury, up to a community-estimated maximum of 345 ETH for this matter. Moreover, the proposals to reinstate borrow caps for each wstETH pool would be: 180K for Core; 70K for Prime.
Aave Price Impact
With the Aave technical incident successfully contained, there was no negative impact on the price of the protocol’s token. On the other hand, it surged over 7% in the last 24 hours, to later have a small correction. Aave is trading at USD 109 at the time of writing.
Aave’s CEO, Stani Kulechov, post above, stated that “A reimbursement plan is currently being coordinated by Service Providers (SPs)” and “there was no impact to the Aave Protocol.”
