Decentralized finance protocol Aave has announced that it will introduce a new feature that will block swaps that affect prices by more than 25% after users lost $50 million in trades while interacting with Aave’s interface last week.
“We will soon be introducing a new feature, Aave Shield, which will provide additional protection for users who use the swap feature on the Aave interface aave.com,” Aave said in a post-mortem statement on Saturday.
Aave said users must manually disable the Aave Shield protection to proceed with high-risk transactions.
The incident occurred on Thursday, when a user tried to exchange $50.4 million worth of USDt (USDT) to Aave (AAVE) through decentralized exchange CoW Swap, but due to a lack of liquidity and other infrastructure failures, they only received $36,500 worth of Aave, resulting in a loss of just over $50 million.
Some of this loss was also the result of a Maximal Extractable Value (MEV) bot that performed a sandwich attack on users, netting them nearly $10 million in profits.
User ignored multiple warning signs
Aave said users signed the transaction despite multiple warnings displayed on the platform’s interface.
This includes alerts about “high price impact” and notifications that a route may return less due to low liquidity or small order size.
According to Aave, users also checked a confirmation box that says, “Check for swaps that can potentially lose 100% of their value.”
Incident shows that DeFi still needs work: CoW DAO
CoW DAO, the team behind Aave and CoW Swap, said reduced liquidity had an “extreme impact on prices,” but CoW DAO added that multiple infrastructure failures were also having an impact.
The CoW DAO said its solver (a third-party service that finds the best way to make a trade) was affected by the old gas restrictions, blocking more favorable price quotes and leaving users with only far worse options to consider.
The CoW DAO noted that one solver had a much lower price quote but was unable to send the transaction on-chain when the opportunity existed.
Related: Venus Protocol loses $3.7 million in “supply cap” attack
CoW DAO said a possible mempool leak may have contributed to the $50 million price estimate.
“We do not yet have definitive answers to all of the issues raised above,” the CoW DAO said, adding that it is “committed to working with Aave and the broader community to transparently resolve the issues.”
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