On June 14, users on leading DeFi platforms Celsius Network and Nexo were hit with unexpected liquidation notices after price feeds for MATIC, SNX and USDT suffered a flash crash. The price deviation was caused by inaccurate price data from a third-party provider.
Coincidentally, on the same day, CoinMarketCap suffered from price deviations on price feeds on major leading assets such as ADA and DOT, which directly coincides with similar price feed errors on Celsius and Nexo.
Due to the price deviations, users received liquidation and margin call notices on their leveraged assets and products on the platforms. Celsius and Nexo, which respectively secure $21 billion and $15 billion in cryptocurrency assets on their platforms, provide simplified yield rewards and collateralized loan services for users.
The most popular product on their platforms is borrowing stablecoins like USDT or FIAT by using your deposited assets as collateral for a loan. Their loans are flexible, minimal interest and provide generous loan-to-value ratios, making them appealing for DeFi users looking to utilise their assets better.
As with all leveraged products of this type, when the price of the asset declines and reaches a certain threshold, additional collateral must be added to continue the loan, known as a margin call. If the price falls further, or additional collateral isn’t added, your assets will be liquidated.
According to Celsius, their SNX and Matic price feeds were affected, meaning any users with loans against these assets would have received a margin call or liquidation notice.
Update – An error for $MATIC and $SNX price feeds from our 3rd party provider triggered margin calls earlier today. The issue is now resolved without any liquidations, and our team is working on resolving any margin calls that were issued as an error. https://t.co/Lmgk2hcMNr
— Celsius (@CelsiusNetwork) June 14, 2021
Celsius further confirmed that the issue is resolved without any liquidations and that their team is working on resolving any margin calls that were issued as an error.
Nexo confirmed that their USDT price feed was affected and the balances of some clients’ accounts were incorrectly liquidated.
Due to a third-party service anomaly, the $USDT price deviated from its market value & some Nexo clients’ balances were incorrectly liquidated.
All incorrect liquidations will be reversed & your wallets’ balances will be restored shortly. We apologize for any inconvenience.
— Nexo (@NexoFinance) June 14, 2021
They also confirmed that any incorrect liquidations will be reversed and wallet balances restored following an investigation.
Both Celsius and Nexo use decentralized price Feed data from Chainlink for many of their internal operations, but rely on centralized sources like CoinMarketCap to oversee their liquidations. For DeFi providers, the need for accurate data, especially when it affects user balances and liquidations, is imperative for both trust and sustainability.
Many DeFi platforms use Chainlink price feeds to secure price feeds and protect themselves against liquidations, including AAVE, SNX, PancakeSwap and SushiSwap. It has proven itself to be the leading oracle provider in the industry, with over 570 integrations now confirmed.
Despite their status as market-leading DeFi providers, it’s peculiar that Celsius and Nexo haven’t secured their price feeds using Chainlink. Their lack of exposure to protection against sudden deviations and flash crashes on price feeds is a reminder of the potential dangers of using DeFi products and the risks involved when using assets as collateral.
Another leading DeFi provider, BlockFi, also faced recent controversy following a fumbled promotional giveaway in which qualifying users were eligible for a bitcoin reward bonus if they traded a certain volume in the promotional period.
According to various users on Twitter and Reddit, large amounts of Bitcoin were deposited to their accounts in rewards. Following this, BlockFi notified their community that there was an issue with the promotion and that some users may see an “inaccurate” bonus on their account.
Some clients who participated in the March trading promotion may see an inaccurate bonus payment displayed in their transaction history. Our team is working on a fix and the proper amounts will be reflected shortly.
— BlockFi (@BlockFi) May 15, 2021
A select group of users who withdrew their rewards then said they received messages from BlockFi that the incorrect amounts should be returned and that legal action may be pursued. BlockFi said that fewer than 100 clients were incorrectly credited with Bitcoin and they were contacted to rectify the issue.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.