Aave introduces 'Aave Shield' protection following $50M trading disaster
Following a detailed analysis of the event, Aave explained that an illiquid market, rather than slippage, resulted in a trader's loss exceeding $50 million during a USDT to AAVE token exchange.
The decentralized finance platform Aave has announced the implementation of a new protective measure designed to prevent swaps that carry a price impact exceeding 25%, following an incident last week where a user sustained a $50 million loss during a transaction executed through Aave's platform interface.
"We are soon deploying a new feature, Aave Shield, which provides more protections for users who use the swap feature in the Aave interface aave.com," Aave said in a post-mortem statement on Saturday.
According to Aave, users will be required to manually turn off the Aave Shield protective system in order to continue with transactions that carry elevated risk levels.
The catastrophic event took place on Thursday, when a user attempted to exchange $50.4 million in USDt (USDT) for Aave (AAVE) tokens through the decentralized exchange CoW Swap, ultimately receiving merely $36,500 worth of Aave tokens as a consequence of insufficient liquidity combined with various infrastructure breakdowns, resulting in a total loss exceeding $50 million.
Contributing to this substantial loss was also a Maximal Extractable Value (MEV) bot that carried out a sandwich attack targeting the user, securing profits approaching $10 million.
User ignored multiple warning signs
According to Aave's findings, the user proceeded to sign the transaction even though numerous warnings were displayed on the platform's user interface.
These alerts encompassed notifications regarding "high price impact" as well as a message indicating that the route could potentially yield less value as a result of inadequate liquidity or minimal order size.
Furthermore, the user actively selected a confirmation checkbox that read, "I confirm the swap with a potential 100% value loss," Aave said.
Incident shows DeFi still needs work: CoW DAO
Although both Aave and CoW DAO, the organization responsible for developing CoW Swap, attributed the "extreme price impact" to insufficient liquidity, CoW DAO further emphasized that several infrastructure malfunctions contributed to the outcome as well.
According to CoW DAO's analysis, a solver — which is a third-party service responsible for identifying the optimal method to execute a trade — experienced complications due to an obsolete gas limit configuration, which prevented superior pricing quotes from being processed and resulted in only a significantly inferior option being available for the user's consideration.
Additionally, one particular solver that had secured a considerably more favorable price quote also experienced a failure when attempting to submit the transaction onchain during the window of opportunity, as CoW DAO highlighted.
CoW DAO indicated that a potential mempool leak might have been a contributing factor to the $50 million price quote outcome.
"We do not have final answers on all of the issues surfaced above yet," CoW DAO said, adding that it is "committed to working through them transparently, with Aave and with the broader community."