Aave moves to address oracle incident after $26M in liquidations

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Aave reports oracle error on Ethereum

Configuration error triggered liquidations

The problem occurred when the wstETH/stETH exchange rate limit calculated by the CAPO system fell below the real market level. As a result, the rate used by the system dropped by about 2.85%.

For some borrowers, this was enough to trigger liquidation. Automatic position closures began under the enhanced efficiency E-Mode. In total, about 10,938 wstETH were liquidated across 34 accounts, with the total value of affected positions estimated at roughly $26 million.

The protocol itself did not experience a liquidity deficit. However, liquidators received about 499 ETH in bonuses and profits generated from the exchange rate deviation.

Aave explained that the issue was caused by a mismatch between parameters inside the smart contract. A restriction on the update speed of one parameter did not match the timestamp used in the calculation system. As a result, CAPO calculated an allowable exchange rate below the actual value.

“In short, this was a configuration incident based on smart contract-level constraints that led to an incorrect update of the wstETH price, triggering approximately $26 million in liquidations,” the company said in a statement.

Protocol prepares compensation for users

After identifying the issue, the team temporarily limited wstETH borrowing in the Ethereum Core and Prime pools to reduce risks. The oracle parameters were then manually adjusted and aligned with current market values.

Part of the funds obtained by liquidators has already been recovered. Through the BuilderNet refund mechanism, about 141 ETH was returned, while approximately 13 ETH came from liquidation fees.

These funds are expected to be used for partial compensation to users whose positions were liquidated as a result of the incident. The remaining payouts, if required, will be covered by the Aave DAO treasury. Preliminary estimates suggest total compensation could reach up to 345 ETH.

What this means for the DeFi market

The Aave incident once again demonstrated how sensitive lending protocols are to the operation of price oracles. Even small deviations in calculations can quickly trigger liquidations, especially in systems with automated collateral management.

Aave remains one of the largest decentralized lending protocols. According to DeFiLlama, the total value locked (TVL) in the protocol consistently exceeds $10 billion, and the platform operates across several blockchain networks.

Earlier, Aave also completed the annual audit of Aave V4. According to Aave Labs, the review lasted 345 days and did not identify any critical or high-risk vulnerabilities. It is considered one of the longest audits conducted for a major DeFi protocol.

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