Pac Finance Abruptly Changes Borrow Pool Parameters, Causing $26 Million Liquidation

The lending protocol Pac Finance, operating on the Blast network, is facing community backlash after abruptly changing borrow pool parameters without prior notice, resulting in liquidations totaling $26 million.

Early on April 12, 2024 (Vietnam time), EigenLabs developer kydo.eth revealed a concerning discovery about Pac Finance on the Blast network.

According to on-chain traces, the Pac Finance team executed a function on the PoolConfigurator-Proxy contract on April 11 (Vietnam time) to change the Loan-to-Value (LTV) ratio for the Renzo Restaked Ether (ezETH) borrow pool from 70% to 60%.

This change immediately impacted ezETH borrow positions, leading to the liquidation of $26 million worth of loan values.

While projects have the authority to adjust LTV and liquidation thresholds, such changes should be communicated to the community in advance and a grace period provided for users to react. This allows users time to withdraw loans or add collateral to avoid liquidation when pool parameters change.

However, Pac Finance did none of these. There was no notification to users and no waiting period. As a result, when the borrow pool parameters changed, the non-compliant loan positions were liquidated within just 6 seconds.

This prompted significant community backlash.

kydo.eth sarcastically noted that we should "feel lucky" that only $26 million was liquidated, suggesting that if the ezETH pool had more value at the time, even more positions would have been liquidated.

In response to these accusations, the Pac Finance team quickly issued a statement:

"In an effort to adjust the LTV, we assigned this task to a smart contract engineer. However, we discovered that the liquidation threshold was adjusted without prior notification to the team, leading to the issue.

We have contacted the affected users to arrange compensation.

Furthermore, we will establish a governance contract with a waiting period and create a forum to notify users of all future updates."
According to the project team, this was an unfortunate incident and they have reached out to the affected users. Pac Finance also promised to create a forum to inform users of protocol updates and changes.

With this prompt acknowledgment and action, the criticism has started to subside.