Pac Finance, a lending protocol and an Aave derivative on the Blast network, experienced a significant wave of liquidations on April 11, following an abrupt reduction in the liquidation threshold for user positions.
Stani Kulechov, the creator of Aave, expressed concern over the incident, stating that the “Random Aave fork on Blast” had lowered the liquidation threshold instead of adjusting the loan-to-value (LTV) ratio. This unexpected change led to approximately $26 million worth of unnecessary liquidations.
The alteration was made to Pac Finance’s PoolConfigurator-Proxy contract by the developer wallet, without prior announcement or implementation of a timelock. As a result, the liquidation threshold for Renzo restaked ether (ezETH) loans was reduced, triggering a surge in liquidations.
Reducing the liquidation threshold in a lending platform can increase the frequency of liquidations by reducing the safety margin for borrowers. Kulechov highlighted the inherent risks associated with forking code, emphasizing the importance of deep understanding and careful consideration of software parameters.
Crypto analyst 0xLoki observed that 93% of the liquidations were executed by a single address (0x..db3d), which profited approximately 244 ETH from the event.
In response to the issue, Pac Finance acknowledged the problem on social media and reassured impacted users that they are actively working to address it. The platform admitted that the adjustment to the LTV ratio was intended but acknowledged that the alteration to the liquidation threshold occurred unexpectedly.
Moving forward, Pac Finance outlined plans to implement a governance contract/timelock and establish a forum for discussing future upgrades. These measures aim to ensure that any changes to the platform are carefully planned and communicated in advance to prevent similar incidents.
