TL;DR
- Pac Finance unexpectedly liquidated the loan positions of its users, resulting in a total loss of $26 million.
- The sudden change in the protocol’s liquidation threshold, without prior notice, triggered the massive liquidation of loans in just 6 seconds.
- Pac Finance’s team is committed to developing a loss mitigation plan and implementing a framework to prevent similar events in the future.
Pac Finance, a decentralized lending protocol based on the Ethereum layer 2 network, Blast, is in the spotlight after unexpectedly liquidating the loan positions of its users, resulting in a total loss of $26 million. The incident is believed to have occurred due to a sudden change in the protocol’s liquidation threshold, without prior notice to the development team.
The protocol allows users to deposit their cryptocurrencies to earn interest and also offers loans to users who provide cryptocurrency collateral. To prevent loan defaults, Pac Finance sets a loan-to-value ratio (LTV), which determines the maximum amount of cryptocurrency a user can borrow relative to the value of their collateral.
Giant swath of ezETH Liquidations on pac finance last night on blast, someone got tagged for $24m pic.twitter.com/uzqRX0UAUD
— Will Sheehan (@wilburforce_) April 11, 2024
However, on April 11, there was an unexpected change in the protocol’s liquidation threshold, resulting in the massive liquidation of loans totaling $26 million in just 6 seconds. The sudden change was carried out by a wallet controlled by Pac Finance, without prior notification or time lock.
Aave Criticizes Pac Finance Developers
The impact of the liquidation was tremendous, with one user losing nearly $24 million. The incident has raised concerns within the community, casting doubt on the integrity and transparency of the platform.
In response to the events, Pac Finance’s team has stated that they are in contact with affected users to develop a loss mitigation plan. Additionally, they are committed to implementing a framework to ensure that users are notified of any changes to the protocol before they are implemented, to prevent similar incidents from occurring in the future.
Key figures in the DeFi sector have weighed in on the incident. Aave founder, Stani Kulechov, pointed out the lack of knowledge of the codebase by Pac Finance developers. He also emphasized the importance of thoroughly understanding the software and protocol parameters to prevent similar incidents in the future.
