- As part of this, MakerDAO states that the Aave Target Borrow Rate (bar) will be set to zero
- Out of the 200 million DAI lent on Aave Ethereum v2, 100m was borrowed by Celsius
Leading Global Financial System, MakerDAO has voted to temporarily disable the AAVE DAI Direct Deposit Module(D3M). The main reason behind disabling AAVE D3M is that out of the 200 million DAI lent on AAVE Ethereum v2, 100m was borrowed by Celsius, mostly collateralized by staked ETH. As part of this, the AAVE Target Borrow Rate (bar) will be set to 0. The firm suggests that the change “might intuitively suggest that the AAVE D3M will utilize its full debt ceiling.”
The news comes as crypto goes through one of its biggest slumps in its lifetime. The leading cryptos – Bitcoin and Ethereum – suffered major bleeding over the past few days. While Bitcoin fell below the $22,000 level, Ethereum went down to an astounding $1155.
In a blog post dated 13th June, the lending platform Celsius stated it was pausing all swaps, withdrawals and transfers between accounts owing to “extreme market conditions.” Celsius’s CEL token fell over 50 percent after it announced the decision to pause withdrawals. At one point, their position came less than 5% away from being liquidated.
As for Aave, its total value locked (TVL) stands at $5.07 billion – a figure that makes it the 3rd largest DeFi protocol. Despite this, the project was being affected by the crash as its TVL has gone down 41% in May.
So far this year, the value of the Aave token has dived 78% as the Decentralised Finance(DeFi) ecosystem continues to suffer highly from exploits, sell-offs triggered by high inflation rates, liquidity drain, and a decline in the value of assets pledged as collateral or pooled to foster liquidity within the crypto ecosystem.
stETH’s Link to the current Liquidity Crunch
Staked ETH losing parity has been cited as a major reason for the liquidity crunch faced by Three Arrows Capital(3AC), Celsius and others. To put things into perspective, Celsius holds 409,260 stETH tokens, worth about $470 million at current prices. Celsius is one of Lido’s principal clients and, as such, one of the largest holders of stETH. A major party of Celsius’s Earn strategy relies on Staked ETH not losing parity with Ethereum. But it has, and now customers are rushing to get their money back, pushing Celsius into a state of insolvency.
The Singapore-based trading firm 3 AC withdrew nearly $400 million of stETH and ETH from the Curve protocol in May. Nansen data suggest that a wallet attributed to 3AC withdrew 80,000 stETH from Aave protocol on Tuesday and converted 38,900 stETH to nearly $45 Million in two transactions at a 5.6-5.9% discount rate for ether. The potential liquidity crisis is expected to haunt the crypto ecosystem for some more weeks.