This time, Chainlink’s pricing scheme has achieved great success.

Author: Azuma

On July 30th, Beijing time, serious vulnerabilities were found in some versions of the smart contract programming language Vyper, resulting in attacks on important projects including Curve Finance. (Related reading: “Loss exceeding $50 million: A summary of the cascade attack caused by the Vyper programming language failure”)

According to the explanation from the Curve team, due to the use of version 0.2.15 of the Vyper language in certain pools (alETH, msETH, pETH), the reentrancy lock function failed, allowing attackers to execute certain functions multiple times in a single transaction, resulting in some financial losses.

As for the specific amount of losses, according to earlier statistics from Panews, the total losses of Alchemix (alETH issuer), JPEG’d (pETH issuer), Metronome (msETH issuer), deBridge, Ellipsis, and Curve CRV-ETH pool amounted to approximately $52 million.

Fortunately, this extreme instantaneous price was not reported by the Chainlink oracle. According to the historical price feed data from Chainlink, due to the use of “CEXs + DEXs” weighted price logic, the lowest price reported by the oracle at the same time was $0.59. As the most commonly used oracle service in the industry, this “small” price difference may have helped Curve, Aave, and even the entire DeFi industry avoid a larger disaster.

Fortunately, this extreme instantaneous price was not reported by the Chainlink oracle. According to the historical price feed data from Chainlink, due to the use of “CEXs + DEXs” weighted price logic, the lowest price reported by the oracle at the same time was $0.59. As the most commonly used oracle service in the industry, this “small” price difference may have helped Curve, Aave, and even the entire DeFi industry avoid a larger disaster.

Let’s imagine what DeFi would be like today if Chainlink had reported $0.08 instead of $0.59.

First of all, it can be determined that a large number of CRV collateral vaults on lending protocols, including Aave, will directly face liquidation risks.

Take Curve founder Michael Egorov’s position as an example. He has a total of 292 million CRV tokens (approximately $181 million) collateralized on Aave, FRAXlend, Abracadabr, and Inverse, with $110 million borrowed. The comprehensive liquidation price is around $0.4. If Chainlink reported a price of $0.08, these positions would undoubtedly be liquidated immediately.

In this case, many users, including Michael Egorov, will face financial losses. Considering that the on-chain CRV liquidity was already insufficient at that time, these liquidations are difficult to be effectively executed, which poses potential bad debt threats to lending protocols such as Aave and FRAXlend (CRV is almost zero, and the money from liquidation sales is difficult to cover the debts).

As the liquidation progresses, CRV will continue to face greater selling pressure, which may intensify community panic (don’t forget that the founder may also be arrested at that time), thereby triggering more severe situations.

Overnight, several pillars of the DeFi world were hit hard, which will inevitably have a huge ripple effect. It is difficult to imagine what the industry will look like after waking up this morning if such a situation really occurs.

In the community discussion, some people likened Chianlink’s price manipulation this morning to BitMEX “pulling the plug” during the extreme market conditions in March 2020. BitMEX, as the largest contract exchange in terms of trading volume in 2020, experienced a one-and-a-half-hour outage during the extreme market conditions in March 2020, but indirectly prevented the market from further crashing, hence being jokingly referred to as “saving the industry” by many.

Objectively speaking, Chianlink’s situation is somewhat different from BitMEX. It is just executing its own “CEXs + DEXs” weighted pricing logic. Although some users may view the use of CEXs as one of the pricing sources in the DeFi world as less decentralized, considering the current market conditions, CEXs still have more comprehensive and stable pricing (especially for altcoins). At least this time, the pricing from CEXs may have saved the industry.

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