What To Know:
- Moonwell proposed a recovery plan after an oracle error caused about $2.68 million in unfair liquidations affecting around 181 users.
- The plan includes immediate partial repayment of about $310K from the Apollo treasury and further compensation through future protocol revenue.
- Moonwell also plans to merge the Apollo ecosystem into its main DAO, converting MFAM holdings into stkWELL at a 1:1.5 ratio to align governance and users.
Decentralised lending protocol Moonwell has released a formal recovery plan after a pricing oracle configuration error triggered unfair liquidations causing a loss of $2.68 million. The proposal is now live on the governance forum and offers a structured compensation process, and a treasury allocation.
The incident took place between February 14 and 18, 2026. During that period, a group of borrowers who supplied cbETH collateral on Base were liquidated under abnormal conditions. According to Moonwell, these liquidations were linked to protocol behaviour introduced under MIP-X43 and not to normal market risk or user mismanagement. Around 181 borrowers were affected.
Moonwell Releases Formal Recovery Plan
An internal on-chain review reconstructed all liquidation activity from that window. The analysis calculated losses on a per-borrower basis and adjusted collateral pricing using a corrected value of $2,200 per cbETH to replace the faulty oracle data. Based on this methodology, the protocol determined total net remediation needs of approximately $2.68 million.
Moonwell’s proposed recovery plan has three main components. First, the Moonwell Apollo treasury will allocate about $310,000 for immediate partial repayment. These funds will be distributed to affected borrowers on a pro-rata basis relative to their verified losses. Second, the remaining compensation will be repaid over time using protocol revenue, including net fees and OEV-related income streams. Thirdly, the plan introduces compensation mechanisms linked to governance token holders.
The proposal also includes the integration of the Moonwell Apollo community into the broader Moonwell ecosystem. The Moonwell deployment on Moonriver has already been deprecated after oracle feeds were discontinued, which led to a full wind-down of markets on that network. As part of the transition, holders of the MFAM governance token will convert their holdings into stkWELL at a 1:1.5 ratio. This conversion is designed to align token holders with the main Moonwell DAO and remove fragmentation between governance systems.
The stkWELL tokens issued as part of this conversion and the cbETH compensation will be claimable through a vesting stream managed by Sablier over a 12-month period. Any unclaimed allocations will expire after that window. Moonwell said the approach balances immediate user relief with long-term sustainability of the protocol’s balance sheet.
Governance approval is necessary for the full plan to move forward. Hence, MFAM token holders will vote on whether to approve the recovery framework and the integration into the Moonwell DAO. A parallel vote within the Moonwell DAO will determine treasury allocation and execution authority for the repayment schedule. If approved, the proposal would formally close the Moonriver chapter and consolidate operations around the Base deployment.
The protocol said that addressing both the liquidation incident and the Apollo wind-down in a single framework allows for a cleaner resolution and clearer governance structure. It also allows Moonwell to concentrate resources on its active markets and future development.
Moonwell stated that the liquidations were not caused by market volatility and that affected users were harmed through protocol mechanics outside their control. The team described the recovery plan as a good-faith effort to restore user confidence and maintain operational stability.
Even though the plan has been generally well-received, it has also triggered some doubts from the community. One user wrote, ““Users are entitled to the full amount of cbETH seized”. Hopefully it means the number of cbETH seized not the value of cbETH at the time of seizure.
Also what if the immediate partial compensation isn’t enough to meet the collateral requirements for the loans we still have active? We would need to pay down the loan or add collateral to prevent another liquidation event.”
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