The decentralized lending protocol Liquity has experienced significant withdrawals exceeding $17 million within a 24-hour period. This surge in outflows follows the platform’s urgent warning to users to exit its version 2 (v2) stability pools due to an investigation into a potential threat.
As reported by DefiLlama, the total value locked in Liquity has fallen dramatically from its all-time high of $84.9 million on February 11 to approximately $67.84 million. The outflows predominantly affected the protocol’s stability pools, which include assets such as wstETH, WETH, and rETH. In stark contrast, Liquity’s version 1 (v1) has seen no similar trends in withdrawals, maintaining its stability during this tumultuous period.
On February 12, Liquity v2 issued a critical notice advising users to promptly withdraw their funds from its stability pools. Shortly thereafter, Ethereum staking leader Lido also recommended its users to delist wstETH assets from Liquity v2’s stability pool due to the ongoing investigations. However, neither Liquity nor Lido disclosed the specifics of the threat, causing immediate market reactions and spurring the outflow of funds.
In the wake of user concerns, Liquity’s team has assured stakeholders that the protocol continues to function as intended, emphasizing that all funds remain secure. Key functionalities, including the ability to withdraw collateral, redeem stablecoins, and stake LQTY, are operating effectively. Crucially, BOLD, the protocol’s stablecoin, remains fully backed.
Liquity v2 was launched just weeks earlier on January 23 with enhanced features to optimize borrowing and lending experiences. This update allows for a broader range of assets to be utilized as collateral, including stETH, rETH, and WETH, and introduces a flexible interest rate mechanism where borrowers can set rates ranging from 0.5% to 1,000%. The stability pool feature was specifically designed to incentivize users through interest earnings and liquidation profits.
However, with an ongoing investigation into the reported threats facing Liquity v2, the platform now faces a critical test of user trust. While withdrawals have begun to slow down, the pervasive uncertainty surrounding the situation poses risks to the protocol’s growth trajectory.
In summary, while Liquity’s token price has remained relatively stable, the implications of this situation could reverberate throughout the platform and the broader crypto market. Users and investors alike remain on alert as developments unfold.
