Aave Oracle Error Sparks $27M wstETH Liquidations

A configuration error in the risk oracle system of the decentralized lending platform Aave triggered approximately 27 million in liquidations of wrapped staked Ether positions on March 10, affecting 34 users and prompting the protocol to commit full compensation for those impacted.

The incident stemmed from a misconfiguration in Aave's CAPO oracle, a tool designed to limit rapid value increases in yield-bearing assets like wstETH, the liquid staking token issued by Lido. According to Chaos Labs, Aave's external risk management partner, the error arose from a mismatch between stored smart contract parameters, including a snapshot exchange rate and its timestamp. This caused the system to apply an undervalued rate of about 1.1939 wstETH per ETH, compared to the actual onchain rate of roughly 1.228, or a 2.85 percent discrepancy. As a result, 10,938 wstETH worth around 27 million became eligible for liquidation when high-leverage positions in EMode dropped below safety thresholds.

Liquidation bots acted swiftly, closing the positions and capturing about 499 ETH, equivalent to roughly 1.2 million, in bonuses and profits under the protocol's rules. Aave founder and CEO Stani Kulechov...