Developer Error at Pac Finance Leads to $26 Million in User Funds Liquidated

Pac Finance, a lending protocol operating on the Ethereum layer 2 solution Blast network and a derivative of Aave, faced a significant liquidation event recently. The platform unexpectedly reduced the liquidation threshold for user positions, resulting in substantial liquidations.

Stani Kulechov, founder of Aave, brought attention to the issue on social media, expressing concern over the situation:

"A random Aave fork in Blast reduced the liquidation threshold (LT) instead of loan-to-value (LTV), resulting in $26 million worth of unnecessary liquidation."

The developer wallet made the unexpected adjustment to the liquidation threshold for Renzo restaked ether (ezETH) loans by altering a function in the PoolConfigurator-Proxy contract within Pac Finance. This alteration occurred without prior notification or time lock, leading to widespread liquidations. Lowering the liquidation threshold on a lending platform can escalate liquidations due to reduced borrower safety margins.

Kulechov highlighted the inherent risk of forking code, emphasizing the importance of a deep understanding of software and parameters.

Crypto analyst 0xLoki observed that a single address (0x…db3d) executed 93% of the liquidations, profiting approximately 244 ETH from the event.

Pac Finance acknowledged the issue and assured affected users that they were in communication. The platform stated its active development of a plan to address the matter with victims, aiming for enhanced communication and pre-planned discussions through a management agreement/timelock and forum for future upgrades.