Aave was hit by a roughly $27 million liquidation cascade after a pricing error temporarily undervalued wrapped staked Ether, or wstETH, across the protocol. A mispricing of only about 2.85% was enough to force liquidations across multiple positions and expose how sensitive leveraged lending markets remain to oracle errors.
The issue was traced to a misconfiguration in Aave’s Collateral Asset Price Oracle, known as CAPO, which caused wstETH to be valued below its actual market level. That faulty pricing fed directly into liquidation logic and affected 34 user accounts on Aave v3, involving about 10,938 wstETH in total.
Oracle mispricing triggered a broad liquidation event
The problem came from a stale or misaligned parameter inside the oracle configuration, which pushed the valuation of wstETH about 2.85% under market. That gap proved large enough to trigger forced liquidations across positions that were otherwise viable under normal pricing conditions.
Chaos Labs identified the anomaly and applied a patch to address the mismatch between the oracle snapshot and timestamp settings. The technical response was aimed at correcting the pricing feed quickly and preventing the same configuration failure from causing further disruption.
Aave also moved to compensate users who were affected by the liquidation wave. The DAO estimated total compensation at 345 ETH, which is expected to be covered through treasury funds as part of the protocol’s remediation plan.
Protocol teams were able to recover part of the liquidation-related proceeds during the response. Aave reported 141 ETH in recaptured liquidation bonus revenue, noted at roughly $285,000, along with an additional 13 ETH in recovered liquidation fees.
Treasury support and governance now sit at the center of the response
Aave leadership said the protocol’s overall integrity remained intact while confirming both the compensation process and the technical fix. The response makes clear that the DAO treasury is not only a governance tool but also a balance-sheet backstop when operational failures hit users directly.
The episode also reinforced a broader point for DeFi lending markets. A relatively small oracle mispricing was sufficient to trigger a multi-million-dollar cascade, showing how tightly collateralized positions can unravel when valuation inputs fail.
