A configuration error in a risk-oracle system used by Aave triggered the liquidation of roughly $27 million in wrapped staked Ether positions, prompting the lending protocol to begin compensating affected users.
In a post-mortem released Tuesday, Aave said about 10,938 Wrapped Staked Ether (wstETH), worth around $27.1 million, was liquidated after the protocol applied an exchange rate that was 2.85% below the live market rate for wstETH and Lido Staked Ether (stETH).
The problem was caused by a mismatch between a snapshot ratio and its timestamp in the Capo risk-oracle configuration, which led the system to calculate a maximum exchange rate lower than the actual onchain price.
Aave said the incident did not create bad debt for the protocol, though liquidators captured roughly 499 Ether in bonuses and value tied to the pricing discrepancy.
Chaos Risk Oracles, an external system integrated with Aave, processed more than 1,200 payloads and 3,000 parameters without issues, according to Aave founder and CEO Stani Kulechov in a Wednesday post on X (social media platform).
Kulechov explained that a technical configuration mistake triggered liquidations for positions already near their liquidation thresholds, adding that the problem has since been fixed.
He also noted that the protocol did not incur any bad debt, though about 345 Ether (roughly $700,000) was captured by liquidators as excess liquidation gains.
Aave to compensate affected users
Aave said it recovered 141 ETH (about $285,000) through BuilderNet refund mechanisms and another 13 ETH in liquidation fees, which will be used to compensate users affected by the liquidations. If necessary, funds from the DAO treasury will be used to cover the remaining losses.
The incident has renewed scrutiny around collateral pricing and oracle risk controls in decentralized finance lending markets. In late February, attackers exploited a price manipulation vulnerability to drain around $10 million from a lending pool managed by YieldBlox DAO and built on the Blend protocol.
Governance tensions inside Aave
The liquidation event also comes amid internal governance tensions within the Aave ecosystem following the decision by the Aave Chan Initiative (ACI) earlier this month not to renew its engagement with the DAO.
ACI cited concerns over governance standards and voting dynamics during the proposal process. In response, Kulechov suggested that DAOs should reconsider how much influence tokenholder voting has compared with leadership input.
According to Kulechov, tokenholders should not vote on every decision, as effectively running blockchain protocols requires dedicated teams and leadership, rather than relying on thousands of potentially politicized or inefficient votes.
