Decentralized finance protocol Aave has announced a new security feature called Aave Shield after a trader lost more than $50 million during a token swap on its platform. The move comes after an incident involving a massive swap from Tether (USDT) to the AAVE token that resulted in an extreme price impact due to poor liquidity and technical issues.
The DeFi platform explained that the loss was not caused by slippage, as initially speculated. Instead, the primary issue was an illiquid market, which drastically reduced the amount of AAVE tokens the trader received.
Aave shared the details in a post-mortem report published on Saturday, confirming that additional safeguards will soon be introduced to prevent similar incidents in the future.
What Happened During the $50 Million Swap
The incident occurred when a user attempted to swap $50.4 million worth of USDT for AAVE through CoW Swap using Aave’s interface. Due to limited liquidity and other infrastructure issues, the trader ended up receiving only about $36,500 worth of AAVE, effectively losing more than $50 million in the process.
Part of the loss was also linked to a sandwich attack executed by a Maximal Extractable Value (MEV) bot, which reportedly generated around $10 million in profit from the transaction.
According to Aave, the platform displayed several warnings before the trade was executed. These alerts highlighted a high price impact and the possibility that the swap could return significantly less value due to poor liquidity. The interface also required the user to confirm a statement acknowledging the possibility of up to 100% value loss.
Despite these warnings, the trader proceeded with the transaction and signed it on-chain.
Aave Shield Aims to Prevent High-Risk Trades
To improve user protection, Aave is preparing to launch Aave Shield, a new feature designed to block swaps that have a price impact greater than 25%.
With this protection enabled by default, users attempting risky trades will be stopped from completing them unless they manually disable the safeguard. The goal is to reduce the chances of large accidental losses caused by liquidity issues or abnormal market conditions.
The incident also raised concerns about the reliability of decentralized trading infrastructure. The team behind CoW Swap, known as CoW DAO, confirmed that several infrastructure failures contributed to the situation.
One issue involved a solver, a third-party service responsible for finding the best trading route. According to CoW DAO, one solver was running with an outdated gas limit, preventing it from submitting a much better price quote. As a result, the trader only saw a significantly worse trading option.
Another solver that had a cheaper quote reportedly failed to submit the transaction on-chain when it had the opportunity.
CoW DAO also mentioned that a possible mempool leak might have influenced the final price quote, though the investigation is still ongoing. The organization said it is continuing to work with Aave and the broader DeFi community to identify the exact causes and improve transparency across the ecosystem.
