Liquity v2 faces $17M outflow after security warning

Liquity v2, an Ethereum-based (CRYPTO:ETH) decentralised borrowing protocol, experienced over $17 million in outflows within 24 hours after advising users to exit its Stability Pools.

The platform issued a warning on February 12 regarding a "potential issue" within its v2 earn pools, prompting the withdrawals.

The announcement led to an 18% drop in Liquity v2's total value locked (TVL), falling from an all-time high of $84.9 million on February 11 to $69.6 million.

According to DefiLlama, the outflows primarily impacted the protocol’s stability pools containing wstETH, WETH, and rETH.

Liquity (CRYPTO:LQTY) assured users that core trading operations, including the redemption of BOLD (CRYPTO:BOLD) tokens, withdrawal of collateral assets, and staking services, remained unaffected.

"The protocol continues to work as expected, and to the team’s knowledge, the potential issue has not impacted any users," Liquity stated.

As a precaution, Liquity asked users to close their positions on v2.

The protocol emphasised its permissionless nature and reminded users of their responsibility to take appropriate actions when interacting with the platform.

The Liquity v2 pool comprises Rocket Pool ETH (CRYPTO:RETH), Wrapped Ether (CRYPTO:WETH), and Wrapped Lido Staked Ether (CRYPTO:WSTETH).

WSTETH outflows amounted to approximately $11.3 million, while RETH and WETH contributed $1.2 million and $4.5 million, respectively. 

Ethereum-based liquid staking platform Lido also advised wstETH holders to withdraw their investments from Liquity v2 Stability Pool (“Earn”).

Liquity v2 was launched on January 23, introducing user-set rates for borrowing.

The protocol's team is currently investigating the potential issue and has committed to providing updates through official channels.

Despite the ongoing uncertainty, Liquity v1 remained unaffected, showing no signs of similar withdrawals.