Pak Finance’s sudden change in entry resulted in $24 million in liquidity

Pak Finance, a lending app on Blast, reported a $24 million drain on its users on April 11 due to the developer's scale change.

Bulk liquidations are common for crypto traders, but are often caused by fluctuations in the market, not protocol parameter changes.

Pak Finance LTV change leads to liquidity.

Pak Finance is a platform where crypto holders can earn interest by lending their assets. The app applies a loan-to-value ratio (LTV), which allows borrowers to take out a loan equal to a certain percentage of their mortgage to ensure repayment. Typically, the development team announces changes to the LTV in advance.

However, at 11:06 UTC on April 11, according to Blast network blockchain data, the developer wallet LTV for Renzo Restaked Ether (ezETH) changed to 60% without prior notice. The sudden adjustment to the LTV parameters has raised concerns in the community following the payment of $24 million.

Developer kydo.eth from EigenLabs first brought the information to light, prompting Pak Finance users to voice their complaints and provide clarification on the protocol's official Discord server.

Thank you as the event is limited to 26m liquid 🙏

Please encourage your users of LRT protocols not to participate in these protocols⛔️

So what happened?

$26m invested in @pac_finance, lending protocol on blast.

EOA wallet (0xae),…

— kydo.eth/acc 🦇🔊 (@0xkydo) April 11, 2024

In response, the group's Discord moderator Bountydreams revealed that they are trying to contact the group for an explanation. However, till the time of writing these lines, no response has been received.

A change in protocol poses a threat to security issues

According to smart contract developer Roffet.eth, the parameter change caused the loss of many ezETH user farmers because they violated the protocol's binding rules. Roffett criticized the change as “arbitrary”, saying it was done without warning.

Will Sheehan, founder of Parsec Finance, also condemned the change, saying it happened without warning. Because of the protocol change, borrowers lost nearly $24 million because their properties were immediately sold to pay off their loans, Sheehan estimated.

Liquidity limit updated, no warning to trigger these liquidations, 2 blocks later $24m flowed, h/t to @roffett_eth pic.twitter.com/QXzlFpwKrR

— Wil Sheehan (@wilburforce_) April 11, 2024

The incident at the blast adds to a series of security issues in the arena. In early March, Blast's loan deal Orbit Loan faced criticism from key opinion leaders (KOLs) over differences in liquidity limits. Although the deal set an 83% liquidity limit, liquidity has reportedly reached 80%. However, the project later compensated the affected users.

In addition, Blast Ecological Project Munchables was recently attacked, leading to suspicions of a problem with its locking contract and 17,400 ETH (approximately $62.3 million) was stolen. SomaXBT revealed that Munchables previously engaged an anonymous security group called Intersoft Team to issue an audit report to reduce audit fees.