Aave to Fully Compensate Users After Configuration Error Leads to $27 Million wstETH Liquidation

Crypto lending platform Aave experienced the forced liquidation of approximately $27 million in wrapped staked Ether (wstETH) positions due to a configuration error in its risk oracle system. The issue stemmed from an inconsistency between the snapshot ratio and timestamp in the Capo risk oracle configuration, causing the system to incorrectly calculate the maximum allowable exchange rate below the actual on-chain rate, triggering unwarranted liquidations.

Aave co-founder Kulechov stated that the affected user positions were already close to the liquidation threshold, but the error exacerbated the scale of the liquidations. The configuration issue has now been resolved, and the protocol has not incurred any bad debt. In this incident, 345 ETH (approximately $700,000) flowed into the hands of liquidators as liquidation rewards, constituting excess profits. To compensate affected users for their losses, Aave recovered 141 ETH (approximately $285,000) in liquidation bonuses through BuilderNet refunds, and an additional 13 ETH in liquidation fees. These funds will be used entirely to compensate users who were incorrectly liquidated. If there is still a shortfall, it will be covered by the Aave decentralized autonomous organization (DAO) treasury. This incident has also reignited community discussions about governance models. Kulechov pointed out that the efficient operation of blockchain protocols relies on professional team decisions, rather than voting by thousands of token holders, and that excessive democratization may lead to inefficient or even politicized governance risks.