AlphaFi Protocol Initiates Orderly Wind Down on Sui

The decentralized lending protocol AlphaFi, built on the Sui network, has entered maintenance mode. According to the project's announcement, the protocol will no longer accept new deposits or loan requests, although user withdrawals remain functional. This decision follows the discovery of a critical issue within its AlphaLend lending product.

The Root Cause: An Oracle Pricing Error

The problem stemmed from an incorrect configuration in the oracle's price feed. This error severely overvalued the collateral for certain borrowing positions that used the ALPHA token, leaving them undercollateralized and ultimately creating bad debt for the protocol.

The Sui Foundation's security team identified the risk during monitoring and worked closely with AlphaFi to address it. The resulting bad debt has now been fully covered, ensuring the protocol's solvency and the safety of all user funds.

User Asset Withdrawal and Wind-Down Process

For all users, the immediate priority is to close existing positions and withdraw assets. The protocol has outlined specific exit paths for different user types and assets:

  • Strategy Users: Users of certain strategies can now withdraw funds directly from their connected wallets.
  • Vault Users: The lock-up periods for vaults containing SUI, WAL, DEEP, and USDC have been removed, allowing for instant withdrawals.
  • Specific Vault: The ALPHA vault related to the issue has been halted, and its lock-up period is also canceled.

Next Steps and Ecosystem Exit

AlphaFi has committed to an orderly wind-down process. The protocol will officially exit the Sui ecosystem once the final user has successfully withdrawn all assets. Until then, the team will continue cooperating fully with the Sui Foundation on further investigation, technical remediation, and any potential recovery efforts.

This incident underscores the critical importance of reliable infrastructure, like oracles, within DeFi protocols, while also demonstrating the capacity for collaboration between a blockchain foundation and its ecosystem projects during a crisis.