A crypto trader lost more than $500,000 after being liquidated on decentralized lending platform Euler on Avalanche due to a sudden spike in the price of deUSD, a synthetic dollar issued by the Elixir Network.

The incident involved a series of large trades on the deUSD/USDT Curve pool, which temporarily pushed the price of deUSD above its intended $1 peg — a spike that was sufficient to trigger a liquidation on Euler.

Chainlink’s price oracle, which provides a volume-weighted average price (VWAP) based on all available trading data, reflected the trades and broadcast the updated price to integrated applications. 

This story is an excerpt from the Unchained Daily newsletter.  

To get these updates in your email for free, subscribe here.

According to Chainlink advocate Zach Rynes — known in some circles as “Chainlink God” — the system worked as intended, but the market for deUSD is relatively illiquid, making it vulnerable to price manipulation or extreme volatility resulting from large trades.

In this case, he said a single large transaction had accounted for a significant portion of daily trading volume, causing the VWAP to spike and resulting in the liquidation.

Rynes was responding to Chaos Labs founder Omer Goldberg, who said the incident “just proved that oracles are one of the weakest links in DeFi.”