Decentralized finance (DeFi) protocol Lista DAO took emergency action yesterday after its USDX/USD1 lending vault ran into a serious liquidity problem. The project said it carried out a flash loan liquidation worth 3,526,011 USDX to help stabilize the market. 

This liquidity incident occurred as the vault became almost fully borrowed out, leaving little amount of USD1 stablecoin available to utilize on November 6. 

Re7 Labs—a DeFi research, tooling, and trading firm—managed the vault and were involved in the response. The community passed a fast one-hour vote to approve the liquidation decision before the liquidation moved forward. This is to reduce the risk and not further deteriorate the situation, as heavy borrowing had already badly affected the liquidity across connected vaults.

Besides the liquidation itself, Lista DAO recovered 2,927,163 USD1 through the flash loan mechanism. The protocol also collected 474,798.48 USD1 in penalty fees. The team confirmed that it will use these funds to repurchase collateral assets, supporting the recovery phase. 

There is still about 2,090,459 USD1 in unpaid debt left in the vault. The team has now placed this remaining amount into a public liquidation pool, which means anyone in the community can help take on and clear the debt. So, the liquidation process is still ongoing and is now open for broader participation.

Emergency vote and protocol safeguards

Earlier, Lista DAO held an emergency vote called LIP022 that lasted one hour. The vote asked the community whether the protocol should move forward with forced liquidation. Most voters supported the move. 

“As the ongoing vote showed an overwhelming consensus for YES of LIP022,” the DAO said, “we have proceeded with the liquidation process to minimize uncertainty and safeguard the protocol.” The decision shows how the team and community needed to act quickly while the vault was under heavy borrowing pressure.

The protocol acknowledged Re7 Labs’ involvement, saying the curator “took proactive steps in users’ best interest.” Additionally, Lista DAO adjusted the USDX/USD1 market interest rate to 3%, because additional interest accumulation offered no benefit during liquidation.

Liquidity pressure across linked vaults

However, the issue wasn’t confined to one market. On-chain analyst Weilin (William) Li pointed out that a severe liquidity crunch had been taking place across vaults holding USD1 and USDT via Euler and Lista. According to Li, depositors can still withdraw their funds by moving positions into solvent markets like PT-satUSD.

He described a strategy of depositing into PT-satUSD and withdrawing from MEV Capital’s vault for the shift in exposure. Li warned users to do so atomically in smart contracts to avoid frontrunning.

Additionally, Lookonchain, which monitors on-chain activity, noted growing strain in the situation. The platform stated “Utilization on Lista DAO’s vaults managed by MEV Capital and Re7 Labs just hit 99%, triggering a forced liquidation.” This indicates that nearly all available liquidity had been borrowed.

Market context and path forward

Besides liquidation efforts, Lista DAO now focuses on transparent settlement and future stabilization. The team continues verifying final numbers and preparing follow-up recovery steps. Moreover, community participation in the open liquidation zone may speed up the clearing of remaining debt.

This incident shows how lending markets can become unstable when too much liquidity is borrowed at the same time. When utilization rates rise sharply, the system faces more risk. 

As of writing, according to CoinMarketCap, Lista DAO’s native token LISTA traded at $0.2481, up 2.6% in the past 24 hours but down 54% in the past month. 

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