Aave experienced a technical glitch that caused the wstETH exchange rate to drop briefly and trigger $26 million in liquidations.
According to the details shared on their official website, the exchange rate between wstETH and stETH fell below the actual market value due to a misalignment in the protocol’s risk system. The liquidations were also triggered automatically, but so far, there has been no bad debt incurred by Aave.
The problem came from the CAPO system, which sets a maximum allowed exchange rate. The two key parameters that make up the system, snapshot ratio and snapshot timestamp, were also misaligned. The snapshot ratio couldn’t update fast enough due to the on-chain rules that were set when it was created, while the timestamp advanced normally, causing the system to use a lower-than-actual rate
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Around 10,938 wstETH were liquidated across 34 accounts. The Liquidators captured roughly about 499 ETH in value, but Aave has so far recovered 141 ETH through refunds and 13 ETH in fees. A compensation plan is also being put in place in order to return the funds to affected users.
Root Cause of the Aave’s Glitch
The incident was caused by the differing update constraints that were used at the smart contract level. The snapshot ratio could only increase gradually on-chain, while the snapshot timestamp, on the other hand, moved freely. This mismatch led CAPO to calculate an artificial decrease in the exchange rate generally.
Source: aave
To fix the problem, Aave temporarily reduced the wstETH borrow caps on Ethereum Core and Prime instances. The snapshot ratio was manually realigned with the timestamp, restoring the oracle to the correct value. The company is also working on making borrowing caps return to their original levels.
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