Users of the decentralized finance (DeFi) app Pac Finance have reportedly suffered losses amounting to $24 million on April 11 due to an unexpected adjustment made to the app’s parameters by a developer wallet. This information has been shared on social media and the app’s official Discord server. In a post on X, the Pac Finance team acknowledged that the parameter change had been made by a smart contract engineer “without prior notification to our team.” The team assured users that they are in contact with those affected and are working to address the issue.
Pac Finance is a cryptocurrency lending app that operates on the Blast network. It allows crypto holders to deposit funds and earn interest by lending their capital. To ensure repayment, the app limits borrowers to loans that are a percentage of their collateral, known as the “loan-to-value ratio” (LTV). The development team has the ability to adjust the LTV, but this is typically done following an announcement.
According to data from the Blast network’s blockchain, at 1:06 am UTC on April 11, a developer wallet triggered a function on Pac Finance’s PoolConfigurator-Proxy contract, setting the LTV for Renzo Restaked Ether (ezETH) at 60%.
This change in parameters resulted in “the liquidation of a large number of ezETH leveraging farmers,” according to smart contract developer Roffet.eth. These borrowers were found to be in violation of the protocol’s collateral rules. Roffet criticized the parameter change as “arbitrary” since it occurred without any warning.
Will Sheehan, the founder of Parsec Finance, also voiced criticism, stating that the change happened “seemingly without warning.” Sheehan estimated that borrowers lost approximately $24 million in collateral as their assets were automatically sold to repay their loans following the change.
In response to the wave of liquidations, Pac Finance users expressed their grievances and demanded answers on the protocol’s official Discord server. The team’s Discord moderator, Bountydreams, stated that they were attempting to contact the team for an explanation but had received no response as of 7:55 pm.
After the article was published, the Pac Finance team posted on X acknowledging the issue. They explained that the parameter change had been made by a smart contract engineer who had been instructed to make changes to the LTV. However, the engineer also made unauthorized adjustments to the liquidation threshold. The team assured users that they are working to mitigate the impact on users and are implementing measures such as a “governance contract/timelock and forum” to prevent similar incidents in the future.
Mass liquidations are a common problem for leveraged traders who borrow cryptocurrency or cash. However, these usually occur due to sudden fluctuations in cryptocurrency prices, rather than protocol changes. For instance, leveraged Bitcoin traders faced liquidations of over $165 million on April 2 during a flash crash, and an additional $110 million in Bitcoin positions were liquidated on April 9 when the price experienced a sudden rise.
Update (April 12, 2:12 pm UTC): This article has been updated to include a statement from the Pac Finance team.