Aave oracle failure leads to approximately $26 million worth of wstETH being improperly liquidated

Odaily Planet Daily reports that according to post-incident analysis by Aave risk management service provider Chaos Labs, a temporary oracle failure occurred on March 10, causing approximately $26 million worth of wstETH positions to be liquidated. The incident affected Aave’s Ethereum Core and Prime markets, impacting 34 accounts, with about 10,938 wstETH liquidated.

The failure was caused by a configuration error in the Aave-related asset price oracle CAPO. A mismatch between the snapshot ratio and the snapshot timestamp parameters led the oracle to report an exchange rate of approximately 1.1939, while the actual market rate was around 1.228, resulting in an effective rate deviation of 2.85%, which triggered automatic liquidation in the E-Mode market.

Chaos Labs stated that the off-chain process determined the snapshot ratio should be updated to about 1.2282, but on-chain rules limited the parameter to a maximum increase of 3% every 3 days, preventing a single update and causing the mismatch.

In the incident, third-party liquidators profited about 499 ETH from forced liquidations. The protocol itself did not incur bad debt; losses were borne by the borrowers. Chaos Labs has temporarily lowered the wstETH borrowing cap and manually aligned the parameters. They are currently working on a compensation plan, having recovered 141.5 ETH for payouts, with the possibility of adding up to 345 ETH from the Aave DAO treasury if needed. Chaos Labs stated that the incident was not a design flaw of CAPO but a misalignment caused by different update constraints on the on-chain configuration.