Emergency Action to Stabilize Lending Vault
Decentralized finance (DeFi) protocol Lista DAO took emergency action yesterday after its USDX/USD1 lending vault ran into a serious liquidity problem. The project announced that 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 a minimal amount of USD1 stablecoin available for use on November 6.
Re7 Labs, a DeFi research, tooling, and trading firm, managed the vault and was involved in the response. The community passed a swift one-hour vote to approve the liquidation decision before the liquidation moved forward. This was done to reduce risk and prevent further deterioration of the situation, as heavy borrowing had already significantly impacted liquidity across connected vaults.
In addition to 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 these funds will be used to repurchase collateral assets, supporting the recovery phase. Approximately 2,090,459 USD1 in unpaid debt remains in the vault. The team has now placed this remaining amount into a public liquidation pool, allowing community members to participate in clearing the debt. Therefore, the liquidation process is ongoing and open for broader participation.
Emergency Vote and Protocol Safeguards
Lista DAO held an emergency vote, designated LIP022, which lasted for one hour. The vote sought community approval for the protocol to proceed with a forced liquidation. The majority of voters supported this measure. The DAO stated, "As the ongoing vote showed an overwhelming consensus for YES of LIP022, we have proceeded with the liquidation process to minimize uncertainty and safeguard the protocol." This decision highlights the need for swift action from the team and community when the vault was under significant borrowing pressure.
The protocol acknowledged Re7 Labs' involvement, noting that the curator "took proactive steps in users’ best interest." Furthermore, Lista DAO adjusted the USDX/USD1 market interest rate to 3%, as additional interest accumulation offered no benefit during the liquidation process.
Liquidity Pressure Across Linked Vaults
The liquidity issue was not isolated to a single market. On-chain analyst Weilin (William) Li observed a severe liquidity crunch affecting vaults that held USD1 and USDT through Euler and Lista. According to Li, depositors could still withdraw their funds by moving positions into solvent markets like PT-satUSD. Li outlined a strategy for shifting exposure by depositing into PT-satUSD and withdrawing from MEV Capital’s vault. He cautioned users to execute these actions atomically within smart contracts to avoid frontrunning.
Additionally, Lookonchain, a platform that monitors on-chain activity, noted the increasing strain in the situation. The platform reported, "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
Beyond liquidation efforts, Lista DAO is now focused on transparent settlement and future stabilization. The team is continuing to verify final numbers and prepare subsequent recovery steps. Furthermore, community participation in the open liquidation zone is expected to expedite the clearing of remaining debt.
This incident serves as a demonstration of how lending markets can become unstable when an excessive amount of liquidity is borrowed concurrently. When utilization rates rise sharply, the system is exposed to increased risk.
As of this writing, according to CoinMarketCap, Lista DAO’s native token LISTA was trading at $0.2481, showing a 2.6% increase in the past 24 hours, though it has declined by 54% over the past month.