AlphaFi has announced the immediate shutdown of its AlphaLend protocol following a significant oracle misconfiguration that led to undercollateralized loans and created bad debt within the system. The Sui Foundation has intervened to fully cover the resulting shortfall, ensuring that AlphaFi remains solvent and user funds are protected during the wind-down process.
Sui Foundation steps in to address debt
AlphaFi, a decentralized finance (DeFi) platform operating in the Sui ecosystem, faced a critical incident when its ALPHA oracle delivered inaccurate data on collateral assets. This issue allowed several borrowing positions using ALPHA as collateral to fall into an undercollateralized state, making the underlying backing insufficient to support outstanding loans.
In response, the Sui Foundation provided the necessary funds to cover all bad debt. Existing AlphaFi users now retain unrestricted access to withdrawal functions, while deposits and new loans on AlphaLend have been suspended during the shutdown.
AlphaFi confirmed, “The protocol is in maintenance mode: withdrawals remain open, but users cannot take new loans.” Sui Foundation’s funding ensured users’ principal and generated yields were not impacted by the incident.
AlphaFi has called on current borrowers to unwind their positions and withdraw their assets as soon as possible. The protocol remains in maintenance mode throughout this process, with no new activity permitted.
What caused the AlphaLend shutdown?
The Sui Security Team identified and reported a misconfiguration in AlphaFi’s ALPHA oracle. An oracle is a service that supplies pricing data to blockchain-based applications, playing a crucial role in determining borrower collateral values in DeFi lending mechanisms.
The misconfiguration made it possible for borrowed positions backed by ALPHA to lose sufficient collateralization, creating risk for the protocol and its users. To resolve this, the Sui Foundation immediately covered all liabilities resulting from the incident.
AlphaFi has stated its full support for Sui Foundation’s ongoing investigation and recovery initiatives, including sharing data and providing technical input as needed.
Mini dictionary: Sui Foundation, a non-profit organization supporting the Sui blockchain ecosystem, focuses on funding projects, ensuring security, and advancing the adoption of decentralized applications on the Sui network.
The Sui Security Team stated, “Following identification and assistance with the resolution of AlphaFi’s misconfiguration of their ALPHA oracle and subsequent creation of bad debt, AlphaFi is winding down operation of their protocol.”
Impact on Slush strategy and future plans
The shutdown also affects AlphaFi users accessing strategies via Slush, a platform offering DeFi investment strategies. Withdrawals are now available directly through Slush Wallet, and vault lock periods for SUI, WAL, DEEP, USDC, and ALPHA have been lifted, most withdrawals process instantly.
AlphaFi advised users with pending withdrawal requests to cancel and reinitiate them so funds arrive without delay. The protocol has also discontinued the ALPHA vault, granting immediate withdrawal access for all remaining users.
The Sui Security Team credited its security tooling for the early detection of the oracle misconfiguration. Once formally launched later in the year, this tooling will be offered to other DeFi projects within the Sui ecosystem, aiming to prevent similar incidents.
AlphaFi intends to maintain operations in wind-down mode until all users have withdrawn their funds. Upon completion, the platform will cease all activity within the Sui network.
| Action | Status |
|---|---|
| Withdrawals | Open |
| New Deposits | Paused |
| New Loans | Paused |
| ALPHA Vault Lock | Removed |
| Slush Strategies | Can withdraw instantly |
