Moonwell incurred approximately $1.78 million in bad debt due to an oracle configuration error

According to Decrypt, the DeFi lending protocol Moonwell has incurred approximately $1.78 million in bad debt due to an oracle configuration error.

After enabling Chainlink's OEV wrapper contract through governance proposal MIP-X43, there was a severe misconfiguration of the price oracle for cbETH, which was once valued at only $1. On-chain trading bots and liquidators acted quickly, seizing cbETH collateral worth thousands of dollars by repaying a debt of about $1.

This configuration error led to the liquidation of 1,096.317 cbETH, wiping out most or all of the collateral for many borrowers, leaving the protocol with a significant amount of bad debt. The Moonwell team immediately reduced the cbETH borrowing limit and supply cap to 0.01 upon discovery to limit further losses, but a spokesperson declined to comment further on the source of the error or the details of the vulnerability.