Chaos Labs - Market Volatility Risk Update - 10/14/2025

[chaoslabs]

Overview

After President Trump announced new tariffs on Chinese imports, financial markets experienced one of the most abrupt and severe downturns in recent memory. In just 30 minutes, Bitcoin’s price dropped over 12%, falling from $116,500 to $102,700. Ether suffered an even sharper decline of around 20%, while several other assets lost more than 50% of their value within a 10-minute span during the same period. This sudden market disruption set off a chain reaction of liquidations across both DeFi and CeFi platforms. While the protocol has accrued approximately $1.38M of bad debt, the bonuses from the liquidations outpaced the deficit, resulting in net positive revenue.

Liquidation Volume

The rapid price action within the broader market has triggered a substantial wave of liquidations within the BNB Core Pool of Venus, primarily concentrated in USDT, BNB, BTCB, and USDC. The total number of liquidations reached 1.6K, while collateral seized exceeded $24M.

While the protocol, largely due to an oracle price deviation, has accrued approximately $1.38M of bad debt, the conservative estimate the aggregate liquidation bonuses and interest rate paid towards the protocol amounted to over $2.6M, creating a net surplus of $1.2M.

Oracle Deviation

Venus experienced an oracle deviation of CAKE in this incident and, as a result, incurred around $1.1 worth of bad debt. Currently, Venus uses the Chainlink CAKE/USD oracle to determine the price of CAKE. However, between 8:30 PM and 10:00 PM UTC, the price reported by the Chainlink oracle significantly depegged from the effective market price of CAKE in the secondary market, specifically in the CAKE/USDT PancakeSwap liquidity pool.

As shown in the chart below, the oracle price consistently traded below the market price, with an average dislocation of around 30% and a maximum dislocation of up to 40%. After 10:00 PM UTC, the oracle price and the secondary market price gradually returned to peg and stabilized.

Due to the significant divergence between CAKE’s oracle-reported price and its actual market price on PancakeSwap, a user was able to exploit the price discrepancy. By borrowing CAKE against the artificially low oracle valuation and subsequently selling it on the open market at a higher price, the user effectively conducted an arbitrage against the Venus protocol. As a result, Venus incurred approximately $1.1M in bad debt as the oracle’s mechanics were taken advantage of.

Summary

Overall, during this flash crash, Venus resulted in approximately $1.38M in bad debt, primarily driven by the CAKE and EIGEN oracle deviation attack. While this was a negative outcome, it was offset by liquidation activity and other revenue, which generated approximately $2.6M in fees. As a result, the protocol remained net positive overall, with an estimated profit of $1.2M following the event.

[Omar.bnb]

why didn’t you recommend implementing our resilient oracle to the cake market? Why WBETH wasn’t pegged to ETH price in advance?

Most importantly why are you taking 0 accountability? Saying that we made more than what we lost doesn’t cover your bad service, this is the second time the protocol occurs bad debt thanks to your carelessness.

You need to do better.

[Raoul_Chainlink]

Hi everyone, Raoul from Chainlink Labs here. We’d like to provide some clarification and corrections to the statements made by Chaos Labs regarding an alleged price deviation with Chainlink Data Feeds.

Chainlink Price Oracle Performance

Based on our in-depth analysis into the performance of the Chainlink CAKE/USD price feed on BNB Chain on the 10th of October from 21:00 to 22:00 UTC, we found that the feed accurately tracked the pricing of CAKE reported by centralized exchanges where the higher trading volumes occurred (CEXs equated to approximately 73% of the trading volume). Most notably, the Chainlink feed closely tracked the CAKE/USDT Binance trading pair, which is the most highly traded market for CAKE.

Chainlink Data Feeds, including the CAKE/USD feed, use a volume-weighted average price (VWAP) methodology, where exchanges with greater trading activity have a larger influence on the final aggregated price than exchanges with less volume. This pricing methodology has been proven to successfully protect against pricing anomalies by reporting the market-wide, volume-weighted pricing of an asset based on real executed trades, while filtering out outliers on lower-volume markets.

Overlay of Chainlink CAKE/USD price feed (blue dots) on BNB Chain and CAKE markets on major CEX on October 10, 2025

To summarize the chart above, during the extremely high volume of trading activity, the price of CAKE dropped significantly, especially on Binance, which was accurately reflected by the Chainlink CAKE/USD price feed on BNB Chain. With Binance falling as low as $1.51 and Chainlink $1.55. The chart showcases prices for CAKE across major venues (Binance, Bitget, Bybit, Coinbase, Gate.io, HTX, Kraken, and Kucoin) and how Chainlink’s VWAP aggregated pricing methodology performed with high levels of accuracy, even during the most extreme market conditions.

Therefore, while some smaller onchain venues may have temporarily seen different pricing than Binance for CAKE, the Chainlink feed accurately tracked the markets with the highest volume.

Liquidation Delays in Searcher Market

The aggregate position opened by 0xa98e339f5a0f135792286d481b4e23d91a667d3f became unhealthy at 21:22:44 UTC at block 64175883 with a total of $27,000 value below its Health Factor. Liquidations of this position were available to searchers on BNB Chain from this block.

The first liquidation transaction did not occur for 4 minutes and 49 seconds, after the Chainlink CAKE/USD oracle had updated 24 times from $1.58 to $1.95. There was a time period of 30 seconds where the price on the Chainlink price feed reflected a price higher than that of the PancakeSwap CAKE pool. This indicates the searchers on Venus were not active as this would have been an atomic and profitable liquidation. This indicates that although this position was available to be liquidated safely, by leveraging the prices on Binance and repaying the loans on Venus, this did not occur.

This issue could be addressed by expanding and optimizing the Venus searcher network. Chainlink has established relationships with a large variety of the top searchers through our work on SVR price feeds and we would be happy to work with the Venus community to help improve searcher diversity on Venus markets by including market makers and other entities who are active on CEXes and hold liquidity on their own books.

Role of Price Oracle vs Risk Configuration

The Chainlink CAKE/USD price on BNB Chain closely tracked the price of CAKE on the most active trading venues, most notably closely following the CAKE/USDT market on Binance.

The analysis conducted by Chaos Labs focused solely on pricing from a single on-chain market for CAKE, without accounting for pricing from major active markets such as Binance, representing a significant oversight in the evaluation. Proper risk management includes taking into account situations of price dislocation where onchain markets may not reflect the same pricing seen within centralized exchanges like Binance where a higher proportion of trading activity occurs. It’s possible that this issue could have been avoided if risk parameters were configured properly to take into account these risks.

We welcome open collaboration to raise the standard across the DeFi ecosystem and encourage all service providers to own their part in strengthening infrastructure, refining parameters, and improving operations to facilitate the creation of a safer and fairer market.