Urgent Alert: DeFi Lender Nostra Halts Borrowing Amid Price Feed Error

In a dramatic turn of events for the decentralized finance (DeFi) space, Nostra, a prominent DeFi lender operating on Starknet, has taken swift action to pause borrowing activities. This decisive move comes after the protocol identified a critical issue stemming from inaccurate price feeds. Specifically, the price feeds for xSTRK and sSTRK, liquid staking tokens, were erroneously inflated, causing potential risks for users. Let’s delve into the details of this developing situation and understand the implications for Nostra users and the broader Starknet ecosystem.

DeFi Lender Nostra Reacts to Critical Price Feed Error

Nostra, a key player in the Starknet DeFi landscape, announced on March 24th the discovery of a “critical issue” impacting its price feeds. This error led to a significant inflation in the reported prices of xSTRK and sSTRK. These tokens, which represent liquid staked versions of Starknet’s native STRK token, saw their prices surge to approximately three times their actual market value.

According to Nostra’s official statement, this price feed error could have triggered unwarranted liquidations of user positions. Imagine users with perfectly healthy collateral suddenly facing liquidation due to incorrect price data – this is the exact scenario Nostra aimed to prevent by immediately addressing the issue.

Immediate Actions: Borrowing Paused and User Recommendations

Responding promptly to the price feed error, Nostra has implemented the following critical measures:

• Borrowing Suspension: Nostra has disabled any new borrowing against xSTRK and sSTRK collateral deposits. This preventative measure is designed to safeguard user funds and prevent further complications arising from the inaccurate price data.
• Withdrawal Recommendation: Users who currently have xSTRK and sSTRK deposited as collateral are strongly advised to withdraw these assets immediately. This recommendation underscores Nostra’s commitment to user safety and proactive risk management.

These actions highlight the challenges inherent in decentralized finance, particularly the reliance on accurate and reliable price oracles. In this instance, the absence of a secondary or fallback oracle for xSTRK and sSTRK presented a significant hurdle for Nostra.

Starknet and Liquid Staking Tokens: Understanding the Context

To fully grasp the situation, it’s important to understand the context of Starknet and the role of liquid staking tokens like xSTRK and sSTRK.

• Starknet: As a layer-2 scaling solution for Ethereum, Starknet utilizes zero-knowledge (ZK) proofs to enhance transaction speed and reduce costs. Launched in late 2021, Starknet has quickly grown into a significant ecosystem, boasting a total value locked (TVL) of around $575 million.
• Nostra within Starknet: Within the Starknet ecosystem, Nostra stands out as a prominent DeFi lender. With a TVL of approximately $55 million, Nostra enables users to deposit collateral in one token to borrow another. Popular collateral options on Nostra include Ether, STRK, and stablecoins like USDC and USDT.
• Liquid Staking Derivatives: STRK, Starknet’s native token, can be staked to earn a share of network fees. xSTRK and sSTRK are liquid staking tokens created by Endur and Nimbura, respectively. These tokens allow users to access the liquidity of their staked STRK, enabling them to participate in DeFi activities while still earning staking rewards.

The Challenge of Price Oracles in DeFi

This incident with DeFi lender Nostra underscores a critical aspect of DeFi protocols: the reliance on price oracles. Price oracles are essential for providing real-time price data that smart contracts use to execute functions like liquidations, borrowing, and lending. However, oracles are not infallible and can be vulnerable to errors or manipulation.

Nostra’s statement, “Since we don’t have a secondary (fallback) oracle to support these assets, as none are available, we are unable to fully prevent similar events from occurring in the future,” highlights the limitations and risks associated with oracle dependency, especially for newer or less established tokens like xSTRK and sSTRK.

Looking Ahead: Ensuring User Safety and Protocol Resilience

The proactive response from DeFi lender Nostra in pausing borrowing and recommending withdrawals demonstrates a commitment to user safety. While the absence of a fallback oracle is a challenge, it also emphasizes the ongoing evolution of DeFi infrastructure and the need for robust risk management strategies.

This event serves as a crucial reminder for DeFi users to:

• Stay Informed: Keep abreast of protocol updates and announcements, especially during volatile market conditions.
• Understand Risks: Recognize the inherent risks in DeFi, including smart contract risks, oracle risks, and market volatility.
• Manage Collateral: Carefully manage collateral positions and consider diversifying assets to mitigate risks.

Conclusion: A Valuable Lesson for the DeFi Ecosystem

The temporary pause in borrowing on Nostra due to a price feed error is a significant event, offering a valuable learning opportunity for the DeFi ecosystem. It underscores the importance of robust oracle solutions, proactive risk management, and the continuous need for vigilance in the rapidly evolving world of decentralized finance. As Starknet and its DeFi ecosystem continue to grow, addressing these infrastructural challenges will be paramount to ensuring long-term stability and user trust.