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News/Pac Finance Liquidates Users for $26 Million in Unexpected Move

Pac Finance Liquidates Users for $26 Million in Unexpected Move

Van Thanh Le

Apr 12 2024

3 months ago3 minutes read
Robot witnessing liquidation

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Pac Finance Liquidations Cause $23.9M Loss for User

The decentralized lending protocol Pac Finance has found itself at the center of a major controversy, liquidating its users for a staggering $26 million. The issue highlights the ongoing challenges faced by DeFi platforms operating on the Ethereum layer-2 network, Blast.

According to on-chain data, a developer wallet associated with Pac Finance unexpectedly altered the loan-to-value (LTV) ratio for the platform's Renzo and restaked ETH (ezETH) tokens, lowering it to 60%. This unanticipated change meant that several borrowers no longer met the collateral requirements, triggering a wave of liquidations that unfolded within just 6 seconds.

Kydo, an EigenLabs developer, confirmed that an EOA wallet controlled by Pac_finance adjusted the liquidation threshold without notice. Subsequently, $26 million was liquidated within 6 seconds post-update.  

The brunt of the impact was felt by a single user who lost a staggering $23.9 million in the process. Pac Finance has acknowledged the incident and stated that it is working closely with affected users to develop a mitigation plan. The team has also pledged to implement a framework that will ensure users are notified of any future decisions before they are implemented.

Aave founder Stani Kulechov, commenting on the situation, attributed the issue to a lack of in-depth knowledge of the codebase, as Pac Finance is a fork of the Aave platform. Kulechov's statement highlights the challenges faced by projects that build upon existing protocols, emphasizing the importance of a thorough understanding of the underlying software and its parameters.

This incident serves as a stark reminder of the inherent risks and complexities associated with the decentralized finance (DeFi) ecosystem, particularly in the realm of layer-2 networks. As the industry continues to evolve, protocols must prioritize transparency, user protection, and rigorous testing to ensure the safety and stability of their platforms.

Conclusion

The Pac Finance debacle underscores the critical need for DeFi protocols to prioritize user protection, transparency, and robust risk management practices to instill trust and confidence in the rapidly evolving decentralized finance landscape.

FAQs

1. What led to the unexpected liquidations on Pac Finance?

A developer wallet associated with Pac Finance unexpectedly lowered the loan-to-value (LTV) ratio for the platform's Renzo and restaked ETH (ezETH) tokens to 60%, causing several borrowers to no longer meet the collateral requirements, triggering a wave of $26 million in liquidations.

2. How did the Pac Finance team respond to the incident?

Pac Finance acknowledged the issue and stated that they are working with affected users to develop a mitigation plan. The team also said they are implementing a framework to ensure users are notified of any future decisions before they are implemented.

3. What is the connection between Pac Finance and Aave?

Pac Finance is a fork of the Aave platform, and Aave founder Stani Kulechov attributed the issue to a lack of in-depth knowledge of the codebase, emphasizing the challenges faced by projects that build upon existing protocols.

4. What are the broader implications of the Pac Finance incident?

The Pac Finance incident serves as a stark reminder of the inherent risks and complexities associated with the decentralized finance (DeFi) ecosystem, particularly in the realm of layer-2 networks, highlighting the critical need for transparency, user protection, and rigorous testing to ensure the safety and stability of DeFi platforms.

This article has been refined and enhanced by ChatGPT.

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