Aave said it will introduce a new protection feature called Aave Shield after a user lost more than $50 million during a large token swap executed through the protocol’s interface last week.
The decentralised finance protocol said the loss occurred when a trader attempted to convert $50.4 million of USDt into AAVE tokens but received only about $36,500 worth due to extreme price impact caused by poor liquidity.
“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.
Aave said the trader proceeded with the transaction despite multiple interface warnings highlighting a high price impact and a notice that the swap could return significantly less value because of low liquidity.
The protocol added that the user also confirmed a prompt stating “I confirm the swap with a potential 100% value loss,” while part of the losses were amplified by a Maximal Extractable Value bot that carried out a sandwich attack and captured nearly $10 million in profit, and following the announcement the Aave token price was unchanged at $116.33.
The trade was routed through decentralised exchange CoW Swap, where both Aave and the CoW DAO team said extreme price impact in an illiquid market contributed to the unusually large loss.
CoW DAO also said infrastructure issues played a role, noting that one solver used an outdated gas limit that blocked better quotes while another solver failed to submit a cheaper transaction on-chain, adding that a possible mempool leak may also have contributed to the incident.
At the time of reporting, Aave price was $116.55.