Liquity v2 outflows surpass $17M following stability pool warning

Decentralized lending protocol Liquity has seen over $17 million in withdrawals after urging users to exit its v2 stability pools due to an ongoing investigation into a potential threat.

According to DefiLlama, an upward of $17 million has left the platform in the past 24 hours. Liquity’s total value locked has dropped, falling from its all-time high of $84.9 million on Feb. 11 to $67.84 million. The outflows primarily impacted the protocol’s stability pools containing wstETH, WETH, and rETH. Liquity v1 has remained unaffected, showing no signs of similar withdrawals.  

On Feb. 12, Liquity v2 issued an urgent warning to users, advising them to withdraw funds from its stability pools. Shortly after Liquity’s announcement, Ethereum staking giant Lido also issued a notice advising wstETH holders to remove their assets from Liquity v2’s Stability Pool. Neither Liquity nor Lido disclosed specific details about the underlying threat. The immediate market reaction to these notices led to the ongoing withdrawals.

Liquity’s team has since informed users that the protocol is working as usual and that all funds are safe. They assured investors that key features like withdrawing collateral, redeeming stablecoins, and staking LQTY, were still running smoothly. They also confirmed that BOLD, Liquity’s stablecoin, remained fully backed.

Liquity v2 was launched on Jan. 23 with several new features aimed at improving borrowing and lending. The update made it possible for users to use several assets as collateral. These include stETH, rETH, and WETH. It also introduced a flexible interest rate system where borrowers could set rates between 0.5% and 1,000%. The stability pool was designed to reward users with interest and liquidation profits.

Now that Liquity v2 is under investigation, the platform is facing a major test of user trust. While withdrawals have slowed, the ongoing uncertainty could affect the protocol’s growth. It’s still unclear if the issue has been completely resolved or whether it will lead to more instability. Liquity’s token price was only mildly affected and remains stable for now.