- The unexpected alteration of the liquidation threshold in Pac Finance led to substantial liquidations, amounting to $26 million.
- This highlights the risks associated with sudden and unplanned changes in the parameters of a lending protocol, which can have significant repercussions for users and their investments.
Pac Finance, a lending protocol built on the Blast network, experienced a wave of significant liquidations on April 11 after a sudden adjustment in the platform’s liquidation threshold. The unexpected change caused borrowers to face a narrower margin of safety, leading to the liquidation of $26 million worth of user positions.
The incident occurred when the developer wallet of Pac Finance modified a function in the PoolConfigurator-Proxy contract. This adjustment unexpectedly lowered the liquidation threshold for Renzo restaked ether (ezETH) loans, resulting in a series of liquidations without prior warning or a timelock mechanism in place.
Stani Kulechov, the creator of Aave, highlighted the incident on X, noting the risk involved in forking code without a thorough understanding of the software and its parameters. The change in the liquidation threshold led to a significant impact on users of the platform.
According to crypto analyst 0xLoki, 93% of the liquidations were executed by a single address, which profited around 244 ETH as a result of the event. This disproportionate liquidation drew further scrutiny to the incident.
Pac Finance responded to the situation on X, stating that they are in contact with affected users and are actively developing a plan to mitigate the issue. The platform explained that the adjustments were intended to modify the loan-to-value (LTV) ratio but resulted in unintended consequences due to the unexpected alteration of the liquidation threshold.
Moving forward, Pac Finance plans to establish a governance contract, timelock, and forum for future upgrades to ensure more structured planning and discussions before implementing changes.
This incident highlights the importance of proper oversight and governance in the DeFi space, particularly when dealing with forked code and complex financial protocols. As the industry continues to evolve, it is crucial for projects to maintain transparency and security to avoid similar issues in the future.
Steps Towards Greater Oversight
Pac Finance’s handling of the sudden liquidations highlights the importance of responsible governance and transparency in DeFi projects. The protocol’s commitment to establishing a governance contract and implementing a timelock for future upgrades is a positive step toward avoiding similar issues in the future. These measures aim to provide greater stability and safety for users, reinforcing the need for meticulous planning and communication in the evolving world of decentralized finance.
Disclaimer : This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments.
