TL;DR
- Security Concerns: Liquity Protocol reported a potential issue with its V2 Stability Pools, urging users to close positions as a precaution while the exact problem is being investigated.
- Heavy Withdrawals: Over $17 million was withdrawn from Liquity v2 within 24 hours of the announcement, leading to an 18% drop in total value locked.
- Ongoing Investigation: Liquity assured users that core functions remain unaffected and committed to providing updates as they address the issue and work to restore confidence.
Liquity Protocol, a decentralized borrowing hub on Ethereum, has recently faced significant challenges with its V2 Stability Pools. On February 12, the protocol announced a potential issue with its V2 vaults, urging users to close their positions as a precaution. The exact nature of the problem remains undisclosed, but the protocol’s team is actively investigating the matter.
User Reactions and Withdrawals
Following the announcement, Liquity v2 experienced substantial outflows, with over $17 million withdrawn within 24 hours. The total value locked (TVL) in Liquity v2 dropped by 18%, from $84.9 million to $69.6 million.
Despite the ongoing investigation, the protocol assured users that all core functions, including the redemption of BOLD tokens, withdrawal of collateral assets, and staking services, remain unaffected.
Impact on Collateral Assets
The Liquity v2 pool consists of three distinct tokens: Rocket Pool ETH (RETH), Wrapped Ether (WETH), and Wrapped Lido Staked Ether (WSTETH). Recent outflows from these tokens reached around $11.3 million for WSTETH, $1.2 million for RETH, and $4.5 million for WETH. Liquid staking platform Lido also advised wstETH holders to withdraw their investments from Liquity v2 Stability Pool (“Earn”).
Protocol’s Response and Future Steps
Liquity Protocol has taken preemptive measures to avoid potential loss of funds. Users were advised to close their positions on v2 “out of an abundance of caution” and to be wary of scam attempts.
The protocol emphasized that it is fully permissionless, and users are responsible for appropriately interacting. The Liquity team has committed to providing updates through official channels, including Discord and X. As the investigation continues, the protocol aims to address the issue and restore user confidence in its V2 Stability Pools.
Liquity Protocol’s recent challenges highlight the importance of security and transparency in decentralized finance (DeFi). As the protocol works to resolve the issue, users and investors will be closely monitoring the situation to ensure the safety and reliability of their assets.
