An Aave derivative running on the Blast network liquidated user positions valued over $26 million following an unintended adjustment to its threshold parameters.
Pac Finance, a decentralized finance (DeFi) platform based on Aave and operating on Coinbase’s layer-2 chain Blast, attempted to modify its loan-to-value (LTV) parameters on April 11. However, instead of adjusting the LTV parameters as intended, the Aave fork inadvertently decreased its liquidation threshold.
Consequently, numerous Ether-collateralized (ETH) positions on the platform were liquidated. According to Will Sheehan, the Founder of block explorer Parsec, one user suffered losses of up to $24 million due to the incident. On-chain analytics also revealed losses for participants denominated in ezETH, totaling thousands of dollars.
Acknowledging the error, Pac Finance promptly communicated with affected users and announced plans to address the issue. Additionally, Aave committed to establishing a community forum to facilitate discussions on future upgrades and modifications to its DeFi lending protocol. Pac Finance also pledged to implement a governance contract to enhance transparency and restore user confidence.
Stani Kulechov, the Founder of blockchain developer Avara and the parent company behind Aave, highlighted the incident as indicative of a fundamental issue with protocol derivatives.
The lending sector is a cornerstone of DeFi, enabling users to borrow and provide liquidity within the cryptocurrency ecosystem. According to DefiLlama, lending protocols collectively hold nearly $35 billion in total value locked (TVL).
Aave holds a dominant position in the market, boasting $11.5 billion in TVL and supporting 12 chains, including Ethereum, Arbitrum, Polygon, Optimism, Avalanche, Gnosis, Base, Metis, Binance Smart Chain, Scroll, Fantom, and Harmony. Additionally, Aave has introduced its stablecoin GHO to compete with Maker’s DAI token on Ethereum’s blockchain.