AlphaFi winds down AlphaLend after oracle error, with Sui Foundation support

AlphaFi is closing AlphaLend after bad debt from an oracle error

AlphaFi is winding down AlphaLend, its lending protocol on the Sui blockchain, after a misconfiguration in the ALPHA price oracle created bad debt. An oracle is a service that feeds outside price data into a blockchain app, and lenders use those prices to value collateral and decide when to liquidate loans.

Sui said on Friday that the Sui Foundation stepped in to support the protocol's solvency. AlphaFi said certain loans backed by ALPHA had become substantially undercollateralized, meaning the collateral was no longer worth enough to cover the loans.

The protocol is now in maintenance mode. New deposits and loans are disabled, while withdrawals stay open. Existing borrowers are being told to close their positions and take out their assets.

The main details

• AlphaLend is being shut down after an ALPHA oracle misconfiguration led to bad debt.
• AlphaFi said the bad debt has been fully covered and that the protocol is solvent.
• DefiLlama recorded about $63.5 million in total value locked in AlphaFi's lending markets at 5:31 p.m. ET on Sept. 25, before the wind-down was announced. Total value locked is the amount of assets held in a protocol.
• AlphaLend's documentation says it relies on oracle prices to value collateral and decide liquidations.

What AlphaFi and Sui said

According to Sui, its security team identified the misconfiguration and helped resolve it. The Sui notice did not say which setting was faulty, how large the bad debt was, or the size and form of the Foundation's assistance.

AlphaFi said the bad debt had now been fully covered, adding: “The protocol is solvent, and all user funds are safe.” The team also said it is supporting the Foundation's investigation and that recovery of amounts owed is being pursued.

Slush users told to leave four AlphaFi strategies

Slush, a wallet, told users to withdraw from its USDC, SUI, WAL and DEEP Strategies, which are provided by AlphaFi. It said principal and generated yield were safe and could be withdrawn immediately, with no waiting period.

Users with pending withdrawal requests should cancel them and submit new ones to receive funds instantly, Slush said. AlphaFi said it removed the lock period on the WAL vault.

Slush said its USDsui and XAUM Strategies keep running normally through a different provider. AlphaFi also discontinued its ALPHA vault and removed its lock period, so ALPHA can be withdrawn at any time.

What is confirmed

• AlphaFi is winding down AlphaLend and has disabled new deposits and loans.
• Withdrawals remain open, and borrowers have been asked to unwind positions.
• The Sui Foundation is providing support related to the protocol's solvency, according to Sui.
• Slush users were told to exit four AlphaFi-provided strategies, and AlphaFi removed lock periods on the WAL and ALPHA vaults.

What is still unclear

The exact faulty oracle setting has not been disclosed. Neither the amount of bad debt nor the size and form of the Sui Foundation's support was specified in Sui's notice. The statement that all user funds are safe comes from AlphaFi, and the recovery of amounts owed is described as being pursued rather than completed.

What happens next

AlphaFi said it will oversee the wind-down until the last user has withdrawn. Withdrawal requests that are still pending should be cancelled and submitted again so funds arrive instantly, according to Slush.

Sources

• The Defiant