⚠️ Oracle Error Leaves Moonwell With $1.8M in Bad Debt…
A critical misconfiguration in Moonwell led to a severe pricing failure: the oracle valued Coinbase Wrapped ETH (cbETH) at approximately $ 1 instead of its market price near $2,200.
This pricing distortion triggered cascading liquidations across the protocol.
💳 Liquidators were able to repay roughly $ 1 of debt and seize disproportionately large amounts of cbETH collateral. In total, 1,096 cbETH were extracted under the faulty valuation, leaving the protocol with approximately $1.78 million in irrecoverable bad debt.
In response, Moonwell has:
• Reduced borrowing limits;
• Cut cbETH deposit caps nearly to zero;
• Initiated a governance process to determine remediation measures.
From a risk management standpoint, the incident underscores a systemic vulnerability in DeFi lending architecture: oracle dependency risk. When collateral valuation feeds fail whether due to misconfiguration, latency, or manipulation liquidation engines execute mechanically, often amplifying losses before human intervention is possible.