AAVE was hit by a major decentralized finance (DeFi) disaster on Thursday after a user lost around $50 million in a transaction involving a swap of a single token. This has shown that trading ultra-large amounts in a market that is less liquid is a major risk.
Blockchain data show that the wallet attempted to trade $50,432,688 worth of aEthUSDT, an interest-bearing asset backed by USDT deposits on the token, for aEthAAVE, an asset backed by Aave Governance Tokens, with the trade going through the CoW Protocol, a decentralized trading infrastructure for executing large trades efficiently.
However, the transaction resulted in over 99% slippage, meaning ~327 aEthAAVE tokens worth $36,000 remained. This demonstrates how the value gap is quickly taken advantage of by arbitrage traders and the network’s intermediaries.
Experts claim that these losses, although rare, are a known DeFi risk. Investors who make extremely large orders in illiquid pools can face losses. The latest trading tools can only alert the trader in such a situation. The decision remains theirs.
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AAVE Warned Before Massive Loss
Stani Kulechov, the founder of Aave, stated that the platform had given several warnings before the transaction. “Earlier today, a user tried to buy AAVE with $50 million USDT via the Aave interface,” he stated. “Due to the unusual amount, the interface even gave a warning about the high slippage and asked for a confirmation checkbox.”
The user saw these warnings on mobile, made the high-risk trade, and proceeded,” Kulechov explained. “The transaction could not move forward without explicit risk acceptance,” he added, noting that CoW Swap routers functioned correctly and conformed to industry standards.
While the outcome was technically correct from a protocol perspective, Kulechov said the outcome “is clearly far from optimal.” Token intends to reach out to the affected user and reimburse them with around $600,000 in fees they have accumulated on the transaction as a gesture of goodwill.
The event occurred just a short time after another event took place in the market on token earlier this week, where a liquidation worth $27 million took place due to a possible temporary price issue involving the wstETH token. It is clear that these back-to-back incidents highlight the risks that exist in the market.
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