Aave Analyzes $50M Loss from AAVE Purchase, Attributing Cause to Market Illiquidity

ChainCatcher report: Aave has released a post-event analysis of the Swap incident. A user executed a token swap via the CoW Swap router integrated into Aave’s interface, attempting to exchange 50,432,688 aEthUSDT (valued at approximately $50.43 million) for aEthAAVE. Due to the unusually large size of the user’s order in a market with insufficient liquidity, CoW Swap provided an extremely unfavorable quote, which the user confirmed and accepted. It is important to note that the Aave protocol itself was never at risk, as this swap occurred outside the protocol via the third-party CoW Swap service. To date, the involved user has not contacted the Aave team. The core issue in this incident is insufficient liquidity—not slippage. Insufficient liquidity means there are not enough assets available at a given price to fulfill a large order, resulting in severe price deviation. The user’s order far exceeded the available market liquidity, and the CoW Swap quote was already 99.9% below the expected market clearing price. The adverse outcome resulted from the user’s confirmation of the quote, not from price changes during execution. The root cause of this event was routing a large trade through a market with inadequate liquidity, leading to extreme price impact. The user proceeded with the transaction after confirming clear warnings displayed in the interface. To prevent similar incidents, Aave Shield will be introduced in the Swap widget: it will by default block swaps with price impacts exceeding 25%, requiring users to manually disable this safeguard to execute high-risk trades. The transaction incurred approximately $110,368 in fees, which will be refunded to the user upon verification.