Chainlink Oracle Error Triggers $532,000 Liquidations on Avalanche

A Chainlink oracle misreported the value of the deUSD stablecoin on Avalanche as $1.028, triggering over $500,000 in liquidations on Euler Finance. The false price update occurred despite no unusual activity in Avalanche’s onchain deUSD markets until after the event. Observers later traced the cause to Chainlink’s volume-weighted average price (VWAP) system reacting to an outlier trade. This incident highlights the risk of applying standard oracle models to assets with thin liquidity, raising concerns over the reliability of Chainlink’s price feeds, especially during volatile trading windows.

On May 29, Chainlink’s oracle on Avalanche registered a spike in deUSD’s price, pushing it 2.8% above its $1 peg. This triggered automatic liquidations for users borrowing against deUSD, with a major $532,000 liquidation occurring just two blocks after the oracle update. Data shows the update happened at block 62918673, although the triggering Ethereum trade occurred 25 minutes earlier. Blockchain records indicate the Avalanche deUSD/WAVAX pool showed no irregularities before the oracle change.

YAM Finance reported that multiple oracle feeds reflected the same incorrect price data. However, it remained unclear what caused the anomaly, as the onchain pools did not reflect any deviation until after the price had been updated. Omer Goldberg, a known voice in DeFi, criticized the delay and methodology behind Chainlink’s price feed. He pointed to the 25-minute lag between the Ethereum-based trade and the Avalanche oracle update, noting that this delay undermines the claim that Chainlink oracles provide real-time, resilient pricing. Goldberg also questioned the use of VWAP on thinly traded pools, noting that a single large trade in Curve’s deUSD/USDT pool heavily skewed the result. He added that the affected pool had very low total value locked prior to the spike, making it unreliable for price references. He urged Chainlink to consider liquidity-weighted pricing or cap mechanisms, similar to those used in other DeFi protocols like Aave.

While concerns mount around the incident, Chainlink’s native token, LINK, is already trending downward with the broader crypto market. At press time, LINK traded at $14.47, marking a 7.66% drop in 24 hours. Over the past week, LINK has declined by 10.36%, underperforming both the overall market and other smart contract platform tokens.