Aave details $26M wstETH liquidations on CAPO glitch

TLDR

• CAPO used stale exchange rate, misaligning snapshot ratio with timestamp.
• Rate cap limited updates to 3%, leaving wstETH underpriced about 2.85%.
• Mispricing pushed positions past thresholds, automatically triggering Aave wstETH liquidations.

As reported by The Block, Aaves Capped Asset Price Oracle (CAPO) applied a snapshot ratio that was misaligned with its snapshot timestamp, after an off-chain process tried to set a seven-day-old exchange rate. Because CAPO caps increases to the snapshot ratio at 3% every three days, only a partial update occurred, which left wstETH underpriced by roughly 2.85%. That mispricing mechanically pushed some positions over liquidation thresholds, triggering the Aave wstETH liquidation event.

The CAPO safeguard is meant to pace the growth of yield-bearing assets for risk control. In this case, the interaction between on-chain constraints and off-chain update logic created a temporary valuation gap that fed into the liquidation engine.

Impact: ~$26M liquidated; no Aave bad debt; Lido unaffected

According to CryptoBriefing, about $2627 million in positions were liquidated, with no bad debt accrued to the Aave protocol. The outlet noted liquidators captured approximately 499 ETH in profit from the price discrepancy.

A Lido contributor, cited by MEXCs news desk, clarified the incident was not caused by any malfunction of wstETH or the Lido protocol itself. The issue was confined to Aaves oracle configuration and its valuation logic for wstETH.

Protocol leadership emphasized that core systems remained intact. No impact to the Aave Protocol, said Stani Kulechov, Founder & CEO of Aave Labs, as reported by Moneycheck.

In a related knock-on effect, Incrypted reported that the LTV Protocol temporarily paused operations due to the abnormal wstETH valuation observed on Aave. Its co-founder estimated more than 10,000 ETH worth of positions were affected during the disturbance and assessed a technical error as the most likely cause.

Aave compensation plan and Chaos Labs prevention steps explained

According to Chaos Labs, the protocols risk partner, immediate steps included temporarily reducing wstETH borrow caps and manually realigning CAPO parameters to restore accurate pricing. The compensation plan combines roughly 141.5 ETH already recovered with up to 345 ETH from the aave dao treasury, intended to reimburse affected users. The firm indicated that claims will be processed to make users whole, subject to standard governance procedures and verification.

The stated prevention steps aim to keep on-chain constraints and off-chain update processes synchronized to avoid snapshot ratio and timestamp drift. Aligning risk parameters with operational playbooks, and rate-limiting oracle adjustments in ways consistent with data refresh cadence, should reduce the chance of recurrence.