- A CAPO oracle misconfiguration on Aave briefly undervalued wstETH, triggering about $27M in DeFi liquidations.
- The glitch created a 2.85% price gap in the oracle feed, pushing some E-Mode borrowers into unexpected liquidations.
- Developers fixed the issue quickly and plan to reimburse affected users after recovering part of the liquidation windfall.
A technical glitch on Aave triggered roughly $27 million in liquidations over the past 24 hours, alarming DeFi users. The issue stemmed from a temporary misconfiguration in the protocol’s CAPO oracle system, which calculates collateral values for tokens like wstETH.
Risk-management firm Chaos Labs flagged a sudden spike in liquidations, prompting deeper investigation into the protocol’s oracle infrastructure. Aave’s founder Stani Kulechov confirmed the issue on X, noting that no bad debt occurred and affected users would be reimbursed.
What Went Wrong With CAPO
CAPO, or Correlated Asset Price Oracle, is designed to prevent price manipulation and inflation attacks on Aave. Omer Goldberg, founder of Chaos Labs, explained that CAPO combines off-chain computations from the Chaos Oracle with on-chain contract logic. “CAPO computes its price cap from the ratio + elapsed time,” he wrote, describing the system’s mechanics.
However, a mismatch between the snapshot ratio and snapshot timestamp caused the oracle to undervalue wstETH by approximately 2.85%. Consequently, borrowers in E-Mode positions faced automatic liquidations even though their collateral remained sufficient.
Moreover, the CAPO contract restricted the exchange rate growth to 3% over three days. When the latest snapshot ratio exceeded this cap, the system defaulted to a lower value while retaining an outdated timestamp.
This inconsistency artificially depressed the oracle price, triggering liquidations. Goldberg added, “The ratio was rate-limited, while the timestamp was not. When these fell out of sync, the system entered an inconsistent state.”
Steps Taken and Reimbursement
Aave’s team, along with Chaos Labs, quickly intervened. Borrow caps were reduced, and the snapshot ratio was manually aligned to restore correct pricing. Stani Kulechov emphasized that 345 ETH in liquidation windfall went to liquidators, but the protocol itself incurred no loss. Additionally, a reimbursement plan is underway using fees previously earned from liquidations. Already, 141 ETH has been recovered via BuilderNet refunds.
This incident highlights the critical role of risk oracles in DeFi. Lending protocols like Aave rely on precise, synchronized data to ensure accurate collateral management. While the glitch caused temporary disruption, the protocol’s fast response and reimbursement plan aim to maintain user trust.
