Moonwell Protocol Incurs $3.7 Million Bad Debt After Oracle Mispricing

Global: Moonwell Protocol Suffers $3.7 Million Bad Debt After Oracle Error

A lending platform operating on the Base Ethereum layer‑2 network recorded $3.7 million in bad debt on November 4, 2025 after an oracle supplied erroneous price data that was quickly exploited. The incident involved the protocol’s wrapped restaked ETH token (wrsETH) and resulted in a short‑lived but extreme price inflation.

Oracle Data Error Triggers Massive Price Spike

According to the Moonwell forum, the Chainlink oracle feeding price information to the protocol mistakenly reported that a single wrsETH token was valued at roughly 1.65 million ETH, equivalent to about $5.8 billion. The misreport was not a deliberate manipulation, but a technical malfunction that produced an outlier price far beyond market reality.

Rapid Exploitation Within Seconds

Within 30 seconds of the faulty data being posted, an actor initiated large borrow transactions against the inflated valuation. The borrowed tokens were subsequently swapped for other assets, allowing the attacker to exit the position before the oracle correction was applied.

Financial Impact on Moonwell

Post‑mortem figures show that the attacker realized a profit of approximately 295 ETH, valued at around $1 million at the time. However, the protocol was left with $3.7 million in bad debt that must be addressed by the Moonwell development team.

Protocol’s Response and Future Safeguards

Moonwell representatives indicated that they are reviewing the incident and will implement additional risk controls, including tighter oracle validation and faster price‑feed monitoring. The team emphasized that the bad‑debt remediation will be a priority moving forward.

Industry Perspective on Oracle Risks

Experts in decentralized finance note that reliance on single‑source price feeds can expose protocols to similar vulnerabilities. Diversifying oracle providers and incorporating automated sanity checks are commonly recommended strategies to mitigate such risks.

This report is based on information from Web3 Is Going Great, licensed under See original source. Source attribution required.