- A developer wallet unexpectedly changed the Loan-to-Value ratio at Pac Finance, triggering liquidations worth $24 million.
- The LTV adjustment was made without prior notification to the community, sparking significant backlash and criticism from key developers.
- In response to the incident, Pac Finance is setting up a governance contract to ensure the community discusses and approves future changes beforehand.
Defi protocol Pac Finance suffered $24 million in liquidations due to a sudden change in parameters made by a developer wallet. Initially pointed out by crypto innovator Will Sheehan on April 11, the issue was later acknowledged by the Pac Finance team, stating:
We are aware of the issue and are in contact with the impacted users, actively developing a plan with them to mitigate the issue.
Pac Finance functions as a defi lending protocol on the Blast network. Cryptocurrency holders leverage the protocol to deposit funds and earn interest on their capital. Repayment is ensured by allowing borrowers to take out loans that are equal to a percentage of collateral they have locked.
This percentage value is dubbed the loan-to-value ratio (LTV), the main parameter at the center of this incident. This parameter can be altered by the development team to best suit a protocol’s interests. However, the holders are usually made aware in advance if such decisions are made.
Data from Blast Block Explorer reveals that on April 11 at 1:06 UTC, a developer wallet called a function on Pac Finance’s PoolConfigurator-Proxy contract. The function set the LTV for Renzo Restaked Ether (ezETH) at 60%, resulting in the liquidations.
Smart contract developer Roffet.eth pointed out that the liquidation was catapulted by a large number of “ezETH leveraging farmers,” who were found to be in violation of protocol rules based on the new LTV. The liquidation was heavily criticized by the community, with Eigen Labs developer Kydo.eth calling the incident “irresponsible.”
Pac Finance shifted the blame to a “smart contract engineer” who was allegedly tasked with adjusting the LTV. The protocol alleges that the engineer altered the LTV unexpectedly without notifying the Pac Finance team. As of now, the developers plan to set up a governance contract along with a forum to discuss all future changes prior to execution.
This isn’t the first mass liquidation in recent months. Leveraged Bitcoin traders saw $157 million in liquidations on April 2, after the price of Bitcoin dropped 5% within a short time span. However, the liquidations in this scenario were due to a sudden price change rather than a mistake on the protocol’s end.
