A recent incident involving Chainlink’s oracle system has rocked the decentralized finance (DeFi) community.
On May 29, 2025, over $500,000 in user funds were wiped out on the Avalanche-based Euler market.
Omer Goldberg detailed the event in a social media post, highlighting vulnerabilities in DeFi oracles.
$500K gone in 180 seconds.
Chainlink just proved oracles are one of the weakest links in DeFi.
Here’s what happened: pic.twitter.com/IgJvwhBKqU
— Omer Goldberg (@omeragoldberg) May 29, 2025
Chainlink, a leading oracle provider, has been a cornerstone of DeFi since its inception.
It secures tens of billions in value across hundreds of protocols by delivering real-time price feeds for assets like deUSD, a synthetic stablecoin issued by the Elixir Network.
However, this incident exposed significant flaws in the system.
The Elixir Network’s deUSD has a total supply of $185 million, with $42.7 million live on Avalanche, per RWA.xyz data.
It’s designed to capture positive funding rates on Ethereum while remaining resilient in negative rate environments.
DeUSD is popular as collateral due to its high-yield profile.
Users were leveraging deUSD at a 92.5% loan-to-value ratio, aiming for returns exceeding 100%.
The trouble started when an MEV bot, jaredfromsubway, executed a $210,000 USDT to $202,000 deUSD swap on Curve’s Ethereum pool.
This trade spiked the price in a low-liquidity market.
Chainlink’s volume-weighted average pricing (VWAP) system picked up the spike.
It broadcasted a deUSD price of $1.0283 to Avalanche, triggering liquidations on Euler.
Within minutes, $532,000 in leveraged positions were liquidated across blocks 62918676 and 62918677.
Zach Rynes, known as ChainLinkGod, defended Chainlink’s performance.
He noted that the deUSD feed was marked as a “High Risk Market” due to its low liquidity and volatility.
Rynes argued that the oracle reflected market-wide price movements and that protocols should take precautions.
Critics, including Goldberg, weren’t convinced.
They argued that labeling a feed as high-risk on Chainlink’s website doesn’t protect users in practice.
The oracle’s “dumb” relay of pool prices, without contextual risk mitigation, failed to safeguard the $500,000 lost in just 180 seconds.
This event echoes past DeFi failures, like the 2022 Terra-Luna collapse.
Oracle-related price discrepancies there contributed to a $40 billion ecosystem wipeout.
It underscores the ongoing challenge of securing tokenized assets in DeFi.
The DeFi sector, valued at $87 billion in total value locked as of June 2025 per DefiLlama, faces growing pains.
Real-world assets (RWAs) like deUSD are gaining traction.
The RWA market is projected to reach $10 trillion by 2030, according to a 2024 Boston Consulting Group report.
Oracle reliability is now a critical concern.
Synthetic assets and dynamic leverage loops are increasing in complexity.
This incident highlights the risks of relying on oracles that can’t adapt to fragmented markets.
In response, Re7 and K3, entities involved in the Euler market, took action.
They updated the oracle configuration, hardcoding deUSD’s value to $1.
This temporary fix prevents further artificial price deviations.
Meanwhile, Chaos Labs, led by Goldberg, is developing a solution.
Their Edge Oracle Network integrates risk management and cross-chain intelligence.
It provides context-aware price feeds to mitigate risks like price manipulation, as detailed in a Gate.io update from October 2024.
Edge analyzes fragmented liquidity, dynamic leverage, and multi-chain risk surfaces in real time.
It aims to address the systemic issues exposed by this incident.
Chaos Labs is positioning itself as a key player in next-generation oracle solutions.
Chainlink’s track record remains strong, having enabled DeFi’s growth for protocols like Aave and Compound.
However, this incident underscores the need for smarter, adaptive oracle systems.
Industry observers suggest stablecoin price caps or resilient algorithms to prevent future failures.
The rise of AI agents and tokenized RWAs will further strain existing infrastructure.
Without systemic improvements, more incidents may occur.
The DeFi ecosystem must balance innovation with security to protect users.
Chaos Labs, headquartered in New York City and Tel Aviv, bridges traditional finance and DeFi.
Their work on intelligent oracles could prevent such catastrophic losses in the future, ensuring DeFi’s long-term stability.