Liquity v2 Outflows Exceed $17M Following Stability Pool Warning

Decentralized lending protocol Liquity has experienced over $17 million in withdrawals following a warning to users about potential threats to its v2 stability pools.

According to data from DefiLlama, the protocol saw significant outflows in the past 24 hours, with its total value locked (TVL) dropping from an all-time high of $84.9 million on February 11 to $67.84 million. The majority of these withdrawals impacted the protocol’s v2 stability pools, particularly those containing assets like wstETH, WETH, and rETH. Liquity v1, however, has not seen similar withdrawals and remains unaffected.

On February 12, Liquity v2 issued an urgent warning, advising users to withdraw funds from its stability pools due to an ongoing investigation into a potential threat. This prompted a response from Ethereum staking giant Lido, which also warned wstETH holders to remove their assets from Liquity v2’s Stability Pool. Neither Liquity nor Lido provided specific details about the underlying issue, but the warning led to an immediate and sharp market reaction.

Despite the withdrawals, Liquity’s team reassured users that the protocol was operating normally, with core features such as withdrawing collateral, redeeming stablecoins, and staking LQTY continuing without issue. The team also confirmed that BOLD, Liquity’s stablecoin, remains fully backed.

Liquity v2, which was launched on January 23, introduced several new features, including the ability to use stETH, rETH, and WETH as collateral and a flexible interest rate system. These changes were aimed at improving the borrowing and lending experience on the platform.

While the ongoing investigation into Liquity v2 presents a challenge to user confidence, the protocol’s token price has remained relatively stable so far. However, the uncertainty surrounding the situation could have longer-term implications for the protocol’s growth and user trust. It remains unclear whether the issue will be fully resolved or lead to further instability.