A Chainlink worth feed’s alleged malfunction led to greater than $500,000 in liquidations on Might 29, sparking contemporary debate over the reliability of oracles in DeFi.
In line with experiences, Chainlink’s worth 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 property (RWAs) and recognized 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 result of its yield profile, it has been extensively used as collateral, usually permitting merchants to leverage positions as much as 10x to chase outsized returns.
Nonetheless, that very same leverage turned catastrophic when the mispriced information cascaded into compelled 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 worth replace by 25 minutes.
He additionally advised the value feed may rely too closely on APIs like CoinGecko, which he mentioned is inappropriate for stablecoin pricing.
Goldberg additional warned that utilizing volume-weighted common worth (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?”
Nonetheless, not all voices aligned with the criticism.
Chainlink’s Neighborhood 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 info.
Rynes added {that a} single Curve pool accounted for half of the each day quantity that day and briefly pushed the value above $1, which Chainlink precisely captured in its VWAP. He wrote:
“Chainlink places the info customers need onchain within the format they need, the protocols are accountable for guaranteeing that information meets their necessities and implements any further 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 property like mature collateral. He warned in opposition to labeling danger shortcuts as innovation, saying it finally exposes customers.
Zeller concluded:
“Chainlink did their job.”
