Aave to Roll Out Aave Shield After $50M User Loss Incident

Decentralized finance protocol Aave said it is introducing a new feature to block swaps with a price impact above 25% after a user lost $50 million in a trade while interacting with Aave’s interface last week. 

“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 on Saturday.

Aave said users would need to manually disable the Aave Shield protection feature to proceed with high-risk trades.

The incident occurred on Thursday, when the user went to convert $50.4 million worth of USDt (USDT) for Aave (AAVE) via decentralized exchange CoW Swap, but received only $36,500 worth of Aave due to a lack of liquidity and other infrastructure failures, generating a loss of just over $50 million. 

Part of this loss was also a result of a Maximal Extractable Value (MEV) bot that executed a sandwich attack on the user, profiting nearly $10 million.

User ignored multiple warning signs

Aave said the user signed the transaction despite multiple warnings appearing on the platform’s interface. 

This included alerts about a “high price impact” and a notice stating the route might return less due to low liquidity or small order size. 

The user also ticked a confirmation box stating, “I confirm the swap with a potential 100% value loss,” Aave said. 

Incident shows DeFi still needs work: CoW DAO 

While Aave and CoW DAO, the team behind CoW Swap, said poor liquidity led to the “extreme price impact,” CoW DAO added that multiple infrastructure failures also played a role.

CoW DAO said a solver — a third-party service that finds the best way to do a trade — was affected by an outdated gas limit, which blocked better-priced quotes and left only a much worse option for the user to consider.