Someone loses over $500,000 in deUSD liquidation, raising concerns about Chainlink’s VWAP pricing system

A crypto trader lost more than $500,000 on Thursday after being liquidated due to a series of events triggered by market movements outside their control, according to blockchain data.

The incident followed several large trades on the deUSD/USDT Curve pool, which caused the price of deUSD — a synthetic dollar issued by the Elixir Network and typically pegged to the U.S. dollar — to spike temporarily. That price movement ultimately triggered a liquidation on the decentralized lending platform Euler on Avalanche.

Zach Rynes, a prominent Chainlink advocate known as “ChainLink God,” said the price of deUSD rose to nearly $1.03 after a surge in trading volume in the relatively illiquid Curve pool on Ethereum. One key transaction involved MEV bot JaredFromSubway swapping $210,000 USDT for $202,000 deUSD, he said.

“What we saw is that a series of trades on the deUSD/USD Curve liquidity pool, representing ~50% of daily trading volume, temporarily pushed the price of deUSD above $1,” Rynes said on X. “Given Chainlink feeds for deUSD report the market-wide volume weighted average price (VWAP), the feed’s pricing reflected these trades.”

The event reignited criticism of onchain oracles — third-party services that feed price data to blockchain applications. Some developers argue that oracles, including Chainlink, are prone to manipulation in thinly traded markets.

“Chainlink just proved oracles are one of the weakest links in DeFi,” Chaos Labs founder Omer Goldberg wrote on X. Similarly, Pepito, a representative for Pyth, suggested that Chainlink may have been “manipulated.”

Rynes defended Chainlink’s pricing system, which calculates a volume-weighted average pricing (VWAP) system based on all available trading data and broadcasts it to integrated applications. In this case, he argued, the oracle worked as intended but was operating in a volatile and illiquid market.

As Goldberg noted, deUSD has a total supply of about $185 million, of which $42.7 million is live on Avalanche. 

“The feed was marked under the High Market Risk categorization given the asset’s low liquidity and volume profile making the market price subject to uncertainty or volatility,” Rynes, who did not respond to a request for comment, said on X. 

“And as such, protocols need to take precaution when building markets involving such assets,” he added. 

That said, Goldberg later argued that Chainlink could employ a more predictable approach for pricing stablecoins, including theoretically “capping” the price or “using an algorithm that is more resilient to outliers.”

“Using VWAP on pools that are illiquid is an exploitable design,” Goldberg argued. “You’re weighting volume across highly illiquid pools. Of course a single ‘large’ trade moves the price.”

Chainlink secures just under $45 billion worth of assets across approximately 20 chains, making it the largest oracle in operation by far.