Starknet-based perpetuals exchange Paradex has refunded $650,000 to 200 users after a database migration error triggered false liquidations. The incident, which briefly displayed Bitcoin and PAXG prices at near-zero, forced the Layer 2 network to execute a controversial chain rollback to restore client funds.
The Glitch
Liquidity vanished instantly during a scheduled database maintenance window. According to a post-mortem by the Paradex engineering team, invalid pricing data was fed into the liquidation engine, causing it to read asset prices, specifically Bitcoin and Pax Gold (PAXG), as effectively zero.
The result? A cascade of forced liquidations on solvent accounts. While the exchange’s interface went dark, backend systems continued to execute trades against the phantom prices.
We have identified the issue and will be rolling back chain state to block 1604710. This is the last known correct state.
The protocol’s emergency response involved a hard reset of the app-chain to Block 1604710, effectively erasing the faulty transactions from the ledger. However, residual discrepancies required direct financial intervention. Paradex confirmed it distributed $650,000 in USDC to 200 accounts, primarily to cover losses related to PAXG positions that the rollback alone could not cleanly rectify.
Institutional Context
This event underscores the centralization risks inherent in app-specific rollups (app-chains). Unlike Ethereum mainnet, where a rollback is technically impossible without a hard fork, Layer 2 sequencers often retain administrative controls to mutate state in emergencies. While this protected user funds, it highlights the trade-off between performance and immutability.
The incident coincided with a broader drawdown for the Starknet ecosystem. The native token, STRK, failed to defend support at $0.08, trading down 5.5% to $0.073 amid the chaos. Additionally, Paradex separately disclosed a minor security breach involving the Mithril trading bot, where 57 API sub-keys were compromised, though this was unrelated to the liquidation engine failure.
