Key Highlights:
- Moonwell governance proposal MIP-X75 introduces collateral factor reductions across Optimism and Base, prompting liquidation warnings for affected borrowers.
- The deprecation of $VELO follows Chainlink’s planned retirement of the VELODROME/USD price oracle feed on November 11.
- Risk management firm Anthias Labs estimated the parameter updates could push dozens of accounts across Optimism and Base past their liquidation thresholds if positions remain unadjusted.
Moonwell Implements Risk Reductions Following Proposal MIP-X75
Decentralized lending protocol Moonwell has moved forward with risk mitigation measures under proposal MIP-X75, prompting warnings for borrowers holding affected collateral on Optimism and Base. The updates recalibrate loan parameters to zero out collateral factors for select assets, directly impacting how much debt those tokens can support and how much collateral users can safely withdraw.
For affected borrowers, the remedy is to repay enough debt or add other eligible collateral to restore a cushion above the liquidation threshold. Moonwell warned $VELO-backed borrowers on Nov. 4 to take those steps before execution. Its borrowing documentation explains that liquidators can sell pledged assets to repay undercollateralized loans. The adjustments on Base primarily address legacy debt, as Anthias Labs, which recommended the adjustments, said in its Oct. 27 analysis that borrowing on Base was already closed. Even with borrowing halted, collateral factors remain critical, determining the stability of existing debt and the ability of users to withdraw non-deprecating assets.
Chainlink Feed Deprecation Drives $VELO Offboarding
The decision to fully eliminate the borrowing power of Velodrome ($VELO) on Optimism stems from infrastructure shifts by its primary data provider. Anthias linked $VELO’s removal to Chainlink’s planned retirement of the VELODROME/USD price feed on Nov. 11. In its Nov. 3 recommendation, the risk firm said continued reliance on the feed after updates stopped would leave Moonwell valuing $VELO at a frozen price.
To establish safe limits for current borrowers during the transition, MIP-X75 also sets fixed oracle prices of $0.02599706 for $VELO on Optimism and $0.01 for MAMO on Base. The proposal says these prices affect borrowers of those tokens, rather than providing collateral backing: both have zero collateral factors under the package.
Estimated Liquidation Impact Across Optimism and Base
Prior to execution, risk analysis from Anthias Labs mapped out the collateral impact across several dozen isolated positions. Anthias estimated that removing $VELO’s borrowing power would make 64 accounts holding about $1,288 of debt newly eligible for liquidation, using a Nov. 3 snapshot. Its Oct. 27 analysis estimated that the combined Base cuts would cross the liquidation threshold for eight accounts holding about $2,497 of debt. These figures represented pre-execution estimates rather than a count of liquidations that have occurred.
In addition to $VELO and MAMO, the governance initiative wraps up the phase-out of wrapped restaked ether (wrsETH). The same October analysis described wrsETH’s zero factor as the final step in its deprecation on Optimism. Anthias estimated that change alone would make two positions holding about $779 of debt newly liquidatable, and said both could avoid liquidation by exiting during the notice period.
Why This Matters
Oracle dependencies represent one of the most critical security layers in decentralized finance. When primary oracle networks deprecate or cease regular updates for specific asset feeds, lending platforms face severe pricing vulnerabilities; relying on a static, frozen price exposes protocols to arbitrage, bad debt, and improper liquidations. Moonwell’s parameter adjustments via MIP-X75 highlight how DeFi protocols proactively wind down markets, adjust collateral factors to zero, and utilize fixed oracle prices to settle outstanding obligations without compromising broader liquidity pools.
Frequently Asked Questions
Why was the collateral factor for $VELO set to zero on Moonwell?
The adjustment was prompted by Chainlink’s scheduled retirement of the VELODROME/USD price feed on November 11. Continuing to support the token as collateral without active oracle updates would leave the protocol relying on a static price, presenting severe market risk.
What can borrowers do to avoid liquidation under MIP-X75?
Borrowers with positions backed by affected assets must either repay sufficient outstanding debt or deposit alternative eligible collateral to re-establish an adequate safety cushion above their liquidation threshold.
How are wrsETH and MAMO affected by these changes?
Under the package, MAMO on Base and wrsETH on Optimism have their collateral factors reduced to zero, marking the final deprecation stages for these assets on the platform and preventing them from backing existing or new borrow positions.
