A configuration incident in Aave’s oracle system triggered approximately $26 million worth of liquidations after the protocol briefly priced wstETH about 2.85% below its actual exchange rate.
The discrepancy caused some leveraged borrowers’ positions to appear undercollateralized, leading to automatic liquidations, according to a new report from Chaos Labs.
The problem came from a mismatch between the snapshot ratio and the snapshot timestamp, the two parameters in Aave’s CAPO oracle system.
The offchain system intended to update the snapshot ratio to reflect the exchange rate from seven days earlier, but an onchain constraint limited increases to 3% every three days. As a result, the ratio could only be partially updated while the timestamp still reflected the full seven-day adjustment.
This misalignment caused the CAPO formula to calculate a maximum exchange rate lower than the actual market rate, effectively pushing the oracle price down.
The event resulted in roughly 10,938 wstETH in liquidations across 34 accounts. Third-party liquidators captured approximately 499 ETH in combined bonuses and profits, though the protocol itself did not accumulate bad debt.
To mitigate the situation, Aave temporarily reduced the borrow caps, corrected the oracle configuration, and restored the accurate exchange rate.
Since then, about 141 ETH has been recovered through BuilderNet refunds, along with around 13 ETH in liquidation fees, which will be used to help compensate affected users. The DAO treasury will cover any remaining shortfall.
