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AAVE has a bad debt problem. A global community of people uses the AAVE Protocol to obtain and service cryptocurrency loans, provide liquidity, wager, earn interest, and/or vote on governance proposals.
However, as a result of these financial transactions, the AAVE protocol itself has liabilities that will be paid to AAVE by users in the future. problem? Some of those debts may be going bad.
AAVE now brag The crypto value on its platform exceeds $6 billion.Currently the so-called “V2” implementation have The $5.5 billion Total Value Locked (TVL) is a commonly quoted (albeit simple to work with) DeFi protocol metric. Its TVL includes $5.16 billion in ETH and ETH-based tokens, $669 million in wrapped Ether (WETH) and $546 million in wrapped Bitcoin (WBTC). increase.
DeFiLlama, a popular metrics website, aggregates $1.7 billion out of $5.5 billion in total debt.website too Have been described $350.3 million in ready-to-liquidate assets Second highest among DeFi applications.
DeFiLlama also mentioned Ethereum managed by AAVE. wallet It currently holds $144 million worth of tokens, mostly in AAVE Wrapped Ether (aWETH) and AAVE Wrapped Bitcoin (aWBTC).
Transaction data from this address will be Receive high-value ETH transactions from centralized exchanges such as BitfinexWe also frequently interact with one of the Center’s official USD Coin wallets. For example, on November 21st he received three transactions. 1,250 eTHslightly over 16,622 Ethereumand almost 10,000ETHdirectly from the Bitfinex Hot Wallet.
ethereum address Labeled with Etherscan Aave: Genesis Team He currently holds $82 million in Ethereum tokens.a recent snapshot According to DeBank, its value is $74 million, equivalent to $7 billion in debt owed by USDC.
of Aave: Genesis Team Interestingly, the wallet received a transfer of 7.2 million USDC on November 17, 2022. In a transaction labeled “Repayment”, he quickly transferred 7 million USDC to AAVE V2. These transactions show that the administrator of the address is withdrawing USDC from the exchange to pay off the loan..
With so many centralized points of control, including centralized exchange accounts controlled by a single person, the AAVE community can not only determine whether debtors are trustworthy, but also who controls the assets of the protocol. I’m starting to wonder if it even exists.
FTX’s bankruptcy has damaged the assets of many AAVE debtors. Billions of dollars will remain locked in bankruptcy proceedings for months and these assets he will not be able to pay back to AAVE anytime soon. at the worst case, Fear could trigger bank runs as depositors try to withdraw assets All at once from the protocol.
AAVE also faces the risk of lending additional digital assets to borrowers who cannot repay. His $1.7 billion borrowed assets at AAVE may indicate significant leveraged trading on digital asset exchanges. Of course, leverage comes with high risk. For example, you can lose money on bad bets or even lose access to your assets when an exchange collapses quickly like FTX.
read more: DeFi Protocols Limit Ether Borrowing Here’s Why
Bad debt could plague AAVE and its users, especially if the market were hit by another severe recession. AAVE may ultimately be considering disposal of billions of dollars worth of illiquid collateralThe protocol’s supposed billions of TVL could plummet rapidly due to a worsening bear market, a bank run-like panic, or both.
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