A recent oracle glitch on Aave triggered about $26 to $27 million in forced liquidations tied to wstETH-backed loans. The issue hit users on Aave v3 who borrowed in “E-Mode” with wstETH as collateral.
Risk firm Chaos Labs reported that Aave’s CAPO risk oracle briefly undervalued wstETH by about 2.85 percent versus its true market price. That lower internal price made many leveraged positions look undercollateralized, so Aave’s liquidation engine automatically closed them.
During the event, the protocol liquidated roughly 10,938 wstETH across 34 accounts, according to Aave’s post-mortem. Third-party liquidators captured around 499 ETH in profit from liquidation bonuses and discounted collateral.
What Went Wrong With the wstETH Pricing
Aave relies on oracle systems to feed asset prices into its lending markets so it can judge loan health. In this case, the base market oracle for wstETH reported accurate market data, but the CAPO risk oracle layer introduced an error.
Chaos Labs and Aave developers explained that stale smart contract parameters sat at the core of the problem. A mismatch between an old exchange rate “snapshot” and its timestamp led CAPO to compute a maximum allowed wstETH rate below the actual market rate.
That cap then dragged down the effective wstETH price that Aave used for risk calculations by roughly 2.85 percent. As a result, healthy positions appeared riskier than they really were and slipped below liquidation thresholds on-chain.
Effects on Borrowers, Aave, and Lido
The glitch heavily affected borrowers using wstETH as collateral, especially those running high leverage in E-Mode. Many of them lost positions in a short window, even though the broader wstETH market traded normally during that time.
Aave itself did not suffer bad debt because liquidators quickly repaid the risky loans and took over the discounted wstETH. However, affected users are unlikely to receive protocol-level reimbursement, based on current commentary and typical DeFi precedent.
Lido contributors stressed that the event did not reflect a problem with wstETH or the Lido staking protocol. They pointed instead to “incorrect wstETH price” data inside Aave’s oracle configuration as the reason for the liquidations.
Following the incident, Aave governance and risk teams published a technical post-mortem and started reviewing CAPO settings across markets. The goal is to update stale parameters, tighten monitoring, and reduce the chance of similar price caps misfiring again.
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