Arbitrum USDC Vault Post-Mortem: What Happened and What Comes Next

Over the past weeks, the Lazy Summer community has been working through an unexpected and difficult event that impacted the Arbitrum USDC Vault of the Lazy Summer Protocol. This post is intended to clearly explain, with the information available at the moment, what happened, why it happened, and what the Lazy Summer DAO and Summer.fi (as front-end) could do moving forward.

We recognize that many users place trust in the Lazy Summer Protocol specifically because of the simplicity of the associated products, decentralized strategies, and the relationship with Block Analitica for risk screening.

Block Analitica (Lazy Summer Protocol Risk Curator) has shared the following write-up with the Lazy Summer community

In this post, you will read about:

1. Background - chain of events that lead to issues with Arbitrum USDC Vault1.1 Connection to Stables Labs (USDX) / Silo Finance
2. Impact on the Lazy Summer Arbitrum USDC Vault
3. How the Protocol normally handles losses, what was different this time and why
4. The timeline of events
5. What has the Lazy Summer DAO discussed/is evaluating now
6. What is Summer.fi improving going forward
7. In Conclusion
8. FAQ

1. Background - chain of events that lead to issues with Arbitrum USDC Vault (according to publicly available information)

On Nov 3, 2025, Balancer V2 Composable Stable Pools suffered an exploit due to a rounding/precision vulnerability in the pool math. An attacker executed complex swaps that drained value across multiple pools, affecting both Ethereum mainnet and L2 deployments. Estimated total losses were ~$94.8M (according to the Balancer Exploit Post-mortem).

Because Balancer V2 uses a shared “Vault + Pool” architecture (liquidity of all pools is pooled under one vault contract), the exploit affected many pools simultaneously.

1.1 Connection to Stables Labs (USDX) / Silo Finance

The exploit triggered a chain reaction across DeFi, USDX and SUSDX from Stables Labs was affected too, losing ~$1M worth of assets. The following explains the next sequence of events that stemmed from this exploit, ultimately leading to issues within the Arbitrum USDC Vault.

1.1.1 Exposure of USDX to the Balancer exploit

After the Balancer V2 issue (Nov-03-2025), Stables Labs publicly confirmed (Nov-04-2025) that their pools were impacted and had lost roughly $1M USDX+sUSDX in deposits.

This immediately reduced the available liquidity supporting USDX redemptions and swaps.

1.1.2 Liquidity removal by Stables Labs and LPs

One day prior, Stables Labs stated they were working with LPs to remove remaining USDX/sUSDX liquidity, effectively eliminating the primary liquidity source for USDX on Arbitrum.

With this removal, USDX liquidity became fragmented and extremely thin. Stables Labs said that liquidity would be restored.

1.1.3 Stables Labs announces loss and confirm that they will cover it

Stables Labs announced they would cover the $1M USDX loss. This reassured the community, and the peg remained intact, with trust that the team would follow through with the reimbursement of affected funds.

Block Analitica has set the market caps to 0, showing a quick reaction at the first announcement of trouble. This has triggered the keepers in the Lazy Summer Protocol to start rebalancing and try to withdraw any funds from the affected market - at that time, there was no available liquidity to withdraw any assets.

1.1.4 Stables Labs disabled Discord

After stating they would cover the loss, the team provided no more updates, and after 48 hours the community started to worry and ask more questions, to which there were no replies. The Stables Labs team then disabled their Discord and stopped replying to any messages from associated teams.

1.1.5 Trust was lost, and the USDX peg began to break

With both liquidity removed from Balancer, and lack of communication from Stables Labs (last tweet: Nov-08-2025), any sellers of USDX were forced to route into thin, fragmented liquidity. This caused the peg to break rapidly.

1.1.6 Silo 127 market continues to read price of USDX as $1

Silo’s sUSDX/USDC lending markets (127) were directly exposed to USDX’s declining price and liquidity. As USDX depegged, these markets became heavily imbalanced, near 100% utilization and economically impaired.

1.1.7 Lazy Summer Protocol’s Arbitrum Vault continues to read value of assets in Silo market as unaffected

Because Silo Finance uses external, market-chosen oracles and a fully oracle-dependent solvency model, it cannot liquidate or update solvency unless the oracle reflects the depeg.

Due to the fact that Silo’s onchain oracle did not reflect the deteriorating value of USDX, downstream systems relying on their reported solvency inherited the incorrect valuation. The impairment therefore surfaced indirectly, once liquidity vanished and withdrawals concentrated the exposure.

2. Impact on the Lazy Summer Arbitrum USDC Vault

Following the Balancer V2 exploit, subsequent USDX depeg and Silo's failure to correctly report the true market value of the sUSDX collateral, Silo’s sUSDX/USDX markets became illiquid.

For context, the Lazy Summer Protocol vaults operate using passive, onchain accounting mechanism:

1. Vaults do not (and can not) actively liquidate positions or intervene in underlying markets.
2. Vault value adjusts automatically based on onchain data reported by underlying protocols/markets, in line with best practice design principles for DeFi protocols.
3. Losses or gains in any protocol/market are reflected proportionally in the vault’s value; this is the mechanism that would, under normal circumstances passively socialize risk.

In this case:

1. The Silo market did not correctly represent the value of the collateral that was backing the lent USDC once USDX started to depeg. This resulted in the market continuing to show onchain that the market was fully capitalized. No loss was being shown in the Silo market adapter on the USDC Vault and as such the share price on the Vault was not affected.
2. Because this likely loss was visible to users of Silo and the Lazy Summer USDC Vault on Arbitrum, although not being reported onchain, users started to withdraw. However, because the Silo market failed to properly report economic impairment the Vault allowed users to withdraw the full value of their positions until liquidity was exhausted.
3. The vault behaved exactly as designed, relying on decentralized, onchain data to determine its value.

The value impact was caused entirely by events outside the control of the Lazy Summer Protocol and the Summer.fi interface: Balancer hack → Stables Labs USDX depeg → Silo Oracles reporting fixed price -> No liquidations on the Silo Market -> No onchain reporting of any loss of value on the Silo Market -> Lazy Summer users withdrawing based on this incorrectly reported value of the Silo Market → Lazy Summer Protocol Arbitrum USDC Vault withdrawals became impossible; and not by any failure of the Lazy Summer Protocol or the Summer.fi interface.

For the sake of transparency, it is important to note that the total Lazy Summer Protocol exposure to USDX was <0.9%, while the Arbitrum USDC Vault exposure was ~16%.

3. How the Protocol normally handles losses, what was different this time and why

The Lazy Summer Protocol Arbitrum Vault (as the rest of the Lazy Summer Protocol Vaults) used an automated diversified strategy allocator that places the liquidity across a DAO-curated set of lending markets, via its keeper setup. The risk involved in each vault strategy is defined by a third party risk curator - Block Analitica.

Under normal circumstances, the Lazy Summer Protocol does not perform liquidations or intervene actively in underlying markets.

Instead, the system relies on a passive, share price-based mechanism:

1. Underlying markets update their value onchain.Searchers, arbitrageurs, and the market itself are expected to bring the reported onchain value of collateral and debt into line with reality.
2. The vault reads this updated value through the underlying protocol’s onchain accounting.Each strategy’s value flows directly into the vault’s share pricing.
3. The vault’s share price adjusts automatically when an underlying position loses or gains value.If one strategy or asset were to fall to zero (or suffer any impairment), that reduced value would be reflected immediately, and without any manual intervention, in the vault’s total assets and therefore per-depositor balance.
4. Losses are therefore passively socialized across all depositors.There is no separate liquidation or redistribution step, the vault simply reflects the state of the underlying assets.

This is the intended “business-as-usual” (BAU) mechanism; a core part of the Lazy Summer Protocol’s resiliency, in that it does not rely on any manual input to reflect changes to underlying protocol or market values, and that every user would immediately share in the gains (and losses) of the underlying strategies.

In this event, the failure originated inside the Silo protocol, not in Lazy Summer Protocol or the Summer.fi frontend.

Silo Finance was using a fixed RedStone oracle for SUSDX/USDX (market 127: SUSDX/USDC). Even after USDX lost its peg, this oracle continued (and continues) to report USDX = $1 onchain (see Additional Technical Context below).

Had Silo liquidated collateral or updated the value correctly, the Lazy Summer Protocol Vault would have reflected the impairment automatically. *The Silo Team has yet to reply to our request for detailed clarification such as an incident report, forum post, or analysis of the events.

Additional technical context/Arbitrum contract addresses for verification:

1. USDC Silo: 0x2433D6AC11193b4695D9ca73530de93c538aD18a
2. SUSDX Silo: 0xd8872677af7bf49D85352fc18c7C32F106f6Fc49
   • Config: 0x6Cc53A49b2c50D2450D6c531a7B5C763BB9Cb758
   • Oracle Config: 0x935a9593D894E738A4e6f7a8729CCA57066Eebc7
     • not verified; after decompilation finally leads to: 0x24c8964338Deb5204B096039147B8e8C3AEa42Cc

RedStone Price Feed (for sUSDX_ARB_FUNDAMENTAL) with 111532600 price (lastAnswer).

The Lazy Summer Protocol performed exactly as designed by relying solely on onchain-reported values. Losses could not be reflected because the chain itself reported full backing.

To be very clear: This behavior was not caused nor was it under control by Lazy Summer Protocol or the Summer.fi frontend. The failure occurred because the underlying market (in this case the Silo 127 Market) did not provide accurate value data onchain.

In summary, the following was not within the control of Summer.fi or the Lazy Summer DAO:

• The choice of, and design of Silo’s oracle mechanism.
• The accuracy of the information provided by Silo's oracle.
• Silo’s inability to liquidate unhealthy positions.
• Risk management within the Silo markets and the inclusion or exclusion of underlying yield sources at this level.
• The ability to immediately pause the affected Lazy Summer USDC Vault (minimum 7 day DAO governance cycle required) which would have blocked users withdrawing before losses could have been socialized.

4. The timeline of events

Below, there is a detailed description of the chain of events that lead to the issues with Arbitrum USDC Vault:

1. Proposal to include the Silo (SUDSX/USDC 127) market posted on the Lazy Summer DAO forum. Aug-11-2025
2. Onchain Lazy Summer DAO governance vote to onboard Silo market to the Arbitrum USDC Vault. Aug-19-2025
3. Block Analitica's risk assessment was posted on the Lazy Summer DAO forum. Aug-26-2025
4. Lookonchain post recognizing unusual onchain transactions on Balancer. Nov-03-2025
5. Stables Labs security update giving reassurance. Nov-03-2025
6. Balancer V2 Composable Stable Pools hack recognition posts.
   Nov-03/04-2025
   https://x.com/Balancer/status/1985283356582453588?s=20 / https://x.com/Balancer/status/1985390307245244573?s=20
7. Stables Labs incident announcement - including promise to cover all losses. Nov-04-2025
8. New deposits into the Silo 127 Market on the USDC Vault on Arbitrum were disabled. Nov-04-2025As soon as the issue was identified Block Analitica promptly set the ARK deposit caps to 0 (tx), this prevented the vault keepers from entering the strategy during the period of uncertainty. This acted as a notice to the keepers to withdraw all available liquidity, and to continue to continue attempting withdrawals if not possible at first attempt.
9. Stables Labs disable sending of messages across all channels on their discord. Nov-06-2025
10. USDX Peg starts to break. Nov-06-2025
11. User deposits into the Lazy Summer Protocol vault / fleet were blocked. Nov-06-2025Similarly, 2 days after, Block Analitica has set the Fleet caps to 0 (tx), preventing new users from entering the vault.
12. Summer.fi updated Arbitrum Vault UI with the notice banner.
    Nov-06-2025
13. Announcements on the Summer.fi Discord channel and on X.
    Nov-06-2025
14. A full snapshot of all affected users was completed by the Summer.fi team. Nov-06-2025This ensures that all future recoveries of assets from Silo, large or small, go entirely to affected depositors, pro-rata.
15. Stables Labs announces “USDX Restoration Arrangement”
    Nov-08-2025
16. The Lazy Summer DAO proposed RFC to address dealing with USDX bad debt Nov-10-2025
17. The Lazy Summer DAO published SIP2.39 to offboard the Silo market. Nov-13-2025
18. The Lazy Summer DAO passed SIP2.39 to offboard the Silo market. Nov-21-2025The delegates of the Lazy Summer DAO voted and executed (tx) the removal the Silo SUSDX/USDC (127) market from the strategy set.
19. Direct message the affected users via DeBank. Nov-21-2025 Summer.fi team sent direct message to the affected users.
20. Summer.fi's engineering team began work on “recovery monitoring” contracts to support Lazy Summer DAO and Protocol users. Nov-25-2025These newly deployed contracts (with the assets transferred by Lazy Summer Foundation) continuously check for any available liquidity in Silo and automatically withdraw it the moment it becomes accessible.
21. Summer.fi communication channels were kept open and transparent. ongoing No blocking/banning of community members has occurred on the official channels, which remained active, ensuring the discussion is visible and not siloed (pun intended).
22. Summer.fi's team is assessing options for legal recourse going forward. ongoing

5. What has the Lazy Summer DAO discussed/is evaluating now

This event exposed a specific, non-obvious failure mode: What happens if an underlying protocol reports an incorrect value onchain?

Taken from the forum of the Lazy Summer DAO, the following forward-looking measures are now in active discussion:

1. Guardian Framework (Emergency Controls)Gives the Lazy Summer Protocol a faster-response way to isolate strategies when an underlying protocol behaves unexpectedly.
2. A rebuild of the Arbitrum USDC strategy set (without USDx exposure)The new Arbitrum deployment (now open for vote) excluding the Silo market, guided by the latest Block Analitica risk assessment.
3. Ongoing discussion around possible compensation for the affected users, deployment of protocol-level insurance fund, and elevated risk communication requirements.
4. Block Analitica has verified inclusion in Silo’s lender registry and monitors updates, but no recovery timeline is present, at the time of writing. Link to the Silo’s lender registry.

These decisions rest with the Lazy Summer DAO, not Summer.fi's team, as Summer.fi is the interface provider.

We have reached out to the Silo and connected teams to support any/all recovery opportunities available. We are also redefining user warnings on the Summer.fi UI, that would propagate directly into user dashboards, not only vault pages.

Summer.fi will continue to support the Lazy Summer Protocol and the DAO with UI, data, analysis, and clear communication throughout this process, as well as any future improvements.

In Conclusion

This incident (as any/all) was painful, especially for users with positions in the Arbitrum USDC Vault.

The underlying failure was caused by inaccurate onchain reporting from Silo Finance, but the impact was felt by users of the Lazy Summer Protocol through the Summer.fi interface, and that matters.

Our commitment is to:

• Continue communicating transparently and honestly.
• Redefine Summer.fi UI user warnings, and
• continue to support the Lazy Summer community in making informed decisions about next steps.

Thank you to everyone who has participated constructively in the community discussion. Your questions and feedback directly shape the improvements in progress now.

A safer, more robust Lazy Summer DAO is forming, and we are committed to making sure this event leads to meaningful, long-lasting protections for all users going forward.

Disclaimer: This post is informational and does not constitute advice or a recommendation

FAQs

1. Will I be compensated?
   Compensation decisions are not made by the Summer.fi team. They are determined through a Lazy Summer Protocol governance (DAO), and an active discussion is ongoing.
2. Why was the USDX / Silo market included in the Arbitrum USDC Vault?
   This decision sits with the Lazy Summer DAO, who curate and approve yield sources for each vault; and its appointed Risk Curator (Block Analitica). The Summer.fi team and this post-mortem cannot speak on behalf of the Lazy Summer DAO or the appointed Risk Curator; it only describes the chain of events that lead to the impact on Arbitrum USDC Vault, based on publicly available information.
3. Are there other yield sources in the Lazy Summer Protocol vaults with similar risks?
   Risk assessment are responsibility of the Risk Curator (Block Analitica); and yield-source selection is the responsibility of the Lazy Summer DAO.Both parties periodically review markets, protocols, and collateral types to determine which are appropriate for vault inclusion.

This post-mortem does not evaluate alternative yield sources or associated risks

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Disclaimer: Oazo Apps Limited functions solely as a front-end interface (Summer.fi) provider and it does not act on behalf of any user. Oazo Apps Limited did not launch nor does it operate or control the Lazy Summer Protocol. The Lazy Summer Protocol is accessed through Summer.fi. The information provided herein is provided on behalf of the Lazy Summer Foundation which launched the Protocol for informational purposes only and it does not constitute investment advice. Oazo Apps Limited and the Lazy Summer Foundation are not soliciting or recommending any transaction or guaranteeing any specific returns. Users interact with the Protocol at their own risk. T&C for the use of Summer.fi apply.