Aave Delists Low Liquid Cryptos After Colliding With $1.6M Bad Debt

LAGOS (CoinChapter.com) — Aave, a decentralized lending platform, has halted lending markets for multiple low-liquidity asset pools in its protocol to protect itself against attacks.

In detail, the DeFi lending protocol temporarily froze lending markets for seventeen tokens following a governance vote, noting that the move would protect the protocol from taking on bad debt by dissuading future market manipulation attacks.

The asset pools temporarily halted include Aave v2’s YFI, CRV, ZRX, MANA, 1INCH, BAT, sUSD, and ENJ. Other are GUSD, AMPL, RAI, USDP, LUSD, xSUSHI, DPI, renFIL, and MKR.

Currently, the protocol will not allow users to deposit any of the above-mentioned assets. In addition, users will not be able to take loans with the delisted assets on the protocol for risk management.

“In response to recent market events and the continued contraction of liquidity across markets, this proposal seeks to reduce the risk profile across many higher volatile assets.”

Aave said.

Aave Faces $1.6M in Bad Debt

Meanwhile, Aave’s proposal was passed days after a trader opened a massive short position on the Curve DAO (CRV) market on Aave.

Avraham Eisenberg, the trader that exploited Mango Markets to the tune of $116 million last month, sought to replicate his trading strategy with Aave. Over ten days, beginning on Nov 14, Eisenberg amassed a loan of 92 million in CRV on AAVE, using $50 million in the stablecoin USDC as collateral.

He then began sending those CRV tokens in hefty chunks to the centralized exchange OKEx, likely to sell. After that, he took the new USDC he swapped for those CRV tokens to borrow more CRV and repeat the cycle.

However, this time, Eisenberg failed due to CRV’s price rebound in the wake of Curve’s stablecoin announcement. The failed attack cost Eisenberg a seven-figure loss. But, it also left the Aave protocol with $1.6M worth of bad debt.

Aave TVL At Record Low

In a related development, the total value of assets locked on the lending protocol is at a record low. Aave, the largest lending protocol on Ethereum with over $ 3.15 billion in assets locked, has slumped by around 25%.

Data from tracking service DeFi Llama shows that Aave TVL sunk to new lows this month. On Jan 1, the lending protocol TVL was approximately $14.34 billion, which fell to around $3 billion in November.

The protocol TVL dipped significantly due to an overall downtrend in the entire crypto market. TVL on Ethereum on the first day of the year was in the region of $8.72 billion. However, waning investor interest triggered a significant decrease resulting in the value of the TVL now at 19.7 million.

Despite the drop in total value locked, Aave still commands a relatively higher value locked than other assets. These include Lido, Uniswap, Convex Finance, PancakeSwap, Compound, JustLend, Instadapp, SushiSwap, and Balancer, among others.