Users of the decentralized finance (DeFi) app Pac Finance have reportedly suffered $24 million in liquidations on April 11 because of a sudden parameter change made by a developer wallet, according to multiple reports on social media and the app’s official Discord server. In a post to X, the team stated that the parameter was changed by a smart contract engineer "without prior notification to our team." They claimed that they are in contact with affected users and are woring to mitigate the issue.
Pac Finance is a crypto lending app that runs on Blast network. It allows crypto holders to deposit funds and earn interest by lending their capital. To ensure repayment, the app only allows borrowers to take out loans equal to a percentage value of their collateral. This percentage is called the “loan-to-value ratio” (LTV). The LTV can be changed by the development team, but this is usually only done after an announcement is made.
According to Blast network’s blockchain data, a developer wallet called a function on Pac Finance's PoolConfigurator-Proxy contract at 1:06 am UTC on April 11, setting the LTV for Renzo Restaked Ether (ezETH) at 60%.
According to smart contract developer Roffet.eth, this parameter change caused “the liquidation of a large number of ezETH leveraging farmers,” as these borrowers were now found to be violating the collateral rules for the protocol. Roffet called the parameter change “arbitrary,” since it was allegedly done without warning.
Parsec Finance founder Will Sheehan also criticized the change, claiming it occurred “seemingly without warning.” Sheehan estimated that borrowers lost approximately $24 million in collateral as their assets were automatically sold off to pay back their loans due to this change.
Related: Curve’s (CRV) price hits a 1-year low amid looming liquidation threat
In response to the cascade of liquidations, Pac Finance users took to the protocol’s official Discord server to complain and demand answers. In response, the team’s Discord moderator, Bountydreams, announced they were attempting to contact the team to get an explanation. By 7:55 pm, they claimed to have still received no response.
After publication, the team posted to X acknowledging the issue. They stated that the parameter change was made by a smart contract engineer who was asked to make changes to LTV. However, the engineer also made changes to the liquidation threshold, which was not authorized by the team. The team claimed they are working to mitigate the impact to users and to set up a "governance contract/timelock and forum" to prevent future incidents like this one.
Mass liquidations are a frequent problem for leveraged traders who borrow cryptocurrency or cash. However, they usually happen because of sudden changes in the price of a cryptocurrency, not because of protocol changes. On April 2, leveraged Bitcoin traders were liquidated for over $165 million when it experienced a flash crash. On April 9, another $110 million in Bitcoin positions were liquidated when the price suddenly rose.
Update (April 12, 2:12 pm UTC): This article has been updated to include a statement from the Pac Finance team.