Aave releases post-event analysis of the $50 million loss from buying AAVE: the core reason is insufficient market liquidity, not slippage
Aave released an analysis of the Swap event: a user executed a token exchange operation through the CoW Swap router integrated into the Aave interface. The user attempted to exchange 50,432,688 aEthUSDT (worth approximately $5,043,270) for aEthAAVE. Due to the user's order being exceptionally large in a market with insufficient liquidity, the quotes from CoW Swap were extremely poor, and the user confirmed acceptance of the quote.
It should be noted that the Aave protocol itself was never at risk, as this exchange occurred outside the protocol, through the aforementioned third-party Swap protocol. Currently, the relevant user has not contacted the Aave team. The key issue in this event was insufficient market liquidity, rather than slippage.
Insufficient liquidity refers to the inability of the market to provide enough assets at a specific price to meet large orders, resulting in severe price deviations. The user's order was far larger than the available market liquidity, and the CoW Swap quote was 99.9% lower than the expected market clearing price; the adverse outcome stemmed from the user's confirmation of the quote, rather than price changes during execution.
The root cause of this event was the routing of large trades in a market with insufficient liquidity, leading to extreme price shocks. The user executed the trade after confirming a clear warning on the interface. To prevent similar events, Aave Shield will be introduced in the Swap widget: it will default to blocking exchanges with price shocks exceeding 25%, and users will need to manually disable this feature to execute high-risk trades. The transaction incurred approximately $110,368 in fees, which will be refunded after user verification.
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