Chainlink oracle ‘malfunction’ sparks $500k in DeFi liquidations, reignites oracle debate
A Chainlink value feed’s alleged malfunction led to greater than $500,000 in liquidations on Could 29, sparking contemporary debate over the reliability of oracles in DeFi.
Based on reports, Chainlink’s value oracle for the deUSD stablecoin inaccurately reported its worth at $1.03. The wrong information triggered liquidations for customers holding deUSD-denominated debt on Avalanche’s Euler Finance lending protocol.
The impression was extreme, particularly for these leveraging the asset, which is backed by real-world belongings (RWAs) and identified for its high-yield potential.
deUSD, issued by Elixir, has a complete provide of $185 million, with $42.7 million circulating on Avalanche. As a consequence of its yield profile, it has been broadly used as collateral, usually permitting merchants to leverage positions as much as 10x to chase outsized returns.
Nevertheless, that very same leverage turned catastrophic when the mispriced information cascaded into pressured liquidations.
Business reacts to Chainlink’s alleged misstep
The incident reignited scrutiny round on-chain oracles. Critics argue these methods are weak to manipulation and errors, particularly when working in illiquid markets.
Omer Goldberg, founding father of Chaos Labs, took to X to criticize Chainlink, claiming that the oracle delayed a vital value replace by 25 minutes.
He additionally prompt the worth feed may rely too closely on APIs like CoinGecko, which he mentioned is inappropriate for stablecoin pricing.
Goldberg additional claimed that utilizing volume-weighted common value (VWAP) in illiquid swimming pools exposes protocols to exploitation. He added:
“The purpose of the oracle is to safe worth and defend customers. If the oracle is ‘dumb’ and simply spits out pool costs, why even use Chainlink in any respect?”
Nevertheless, not all voices aligned with the criticism.
Chainlink’s Group Liaison, Zack Rynes, pushed again in opposition to the allegations. He clarified that Chainlink merely displays aggregated market exercise and that it’s as much as particular person protocols to interpret or filter the information.
Rynes added {that a} single Curve pool accounted for half of the every day quantity that day and quickly pushed the worth above $1, which Chainlink precisely captured in its VWAP. He wrote:
“Chainlink places the information customers need onchain within the format they need, the protocols are answerable for guaranteeing that information meets their necessities and implements any extra subjective checks or limits they need.”
In the meantime, Marc Zeller of the Aave Chan Initiative mentioned the fault lies in protocols treating risky or illiquid belongings like mature collateral. He warned in opposition to labeling danger shortcuts as innovation, saying it in the end exposes customers.
Zeller concluded:
“Chainlink did their job.”
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