Aave’s USDT pool hits 92.8% utilization after $115M whale withdrawal
The post Aave’s USDT pool hits 92. 8% utilization after $115M whale withdrawal appeared com. One whale took out $114. 9M from Aave, taking most of the liquidity in its USDT vault. The loan increased the vault utilization to 92. 83%, breaking above the preferred limit of 92%. The whale’s outsized loan broke the balance of vault utilization on Aave, above the maximum threshold of 92%, showing the potential fragility of DeFi lending and threatening to block the funds of lenders. Crypto lending has grown in the past year, becoming one of the main sources of yield. Lending protocols competed on their yield, and the top platforms were usually conservative. Aave remained solvent and had normal loan utilization until now. A single whale went over the threshold with the outsized loan. The whale now holds over $115M in USDT, along with $5M in other assets. For DeFi lending, one of the fears is that user funds are redirected in a non-transparent way to other protocols. With over 69B locked in lending, there are fears that decentralized protocols may have the same effect as the FTX exchange. This time, however, lenders will have no recourse for recovery from a single legal entity. Is Aave in danger of over-utilization? Over-utilization has become a problem for smaller protocols with riskier vaults. Recent data shows smaller protocols have extremely high utilization, with some choosing forced liquidations. The recent aggressive borrowing means the lending pools do not see any repayments. The liquidity providers also cannot withdraw their funds, despite the promised high returns. I n a recent example of over-borrowing, two vaults on Lista DAO were force-liquidated after reaching 99% utilization with no repayments. The vaults used collateral in the form of a risky stablecoin and lent out more liquid assets. Utilization in DeFi refers to the percentage of funds borrowed from a protocol. As of November, there are warnings to check.