Aave's total value locked fell by about $1 billion between Oct. 27 and Nov. 3, the largest dollar decline among large protocols examined, with Lido down $713 million. The drop followed Binance's Oct. 29 security breach, but stablecoin supply was already shrinking before it.
Aave recorded the biggest dollar decline among the large protocols examined between Oct. 27 and Nov. 3, as its dated daily total value locked (TVL) fell by about $1 billion. Lido followed with a $713 million decline. Falling token prices can reduce TVL without depositors moving assets, so a smaller TVL does not by itself establish either capital flight or insolvency.
An exploiter-linked wallet tests Aave
Binance's Nov. 3 report estimated that approximately $6.34 billion in assets were impacted on October 29 and said the company would absorb the financial impact. The incident also added a shock to decentralized lending, when an exploiter-linked wallet supplied 60 million USDT to Aave and borrowed 19,762 units of Wrapped Ethereum (WETH), worth about $44.6 million at the time.
Aave's risk service provider LlamaRisk described the position in its Oct. 30 assessment as overcollateralized and subject to normal liquidation, and said it did not put suppliers at risk. Even so, guardians subsequently froze 175 Aave V3 reserves and 117 V4 reserves. New supply and borrowing stopped there, while repayments, withdrawals and liquidations remained enabled.
Withdrawals push utilization higher
Suppliers could withdraw available tokens, but fresh deposits could not replace them. LlamaRisk said withdrawals pushed some large reserves to 92%-100% utilization, meaning almost all supplied funds were borrowed. Borrowing costs rose, and stewards temporarily reduced the upper part of the interest-rate curves.
The affected reserves had reopened by Oct. 31. LlamaRisk's Nov. 2 update reported the restoration of specified non-stablecoin collateral settings and said affected reserves had returned to pre-incident rate curves on Nov. 1. However, USDT, USDC and USDT0 still had zero collateral borrowing power in affected configurations.
Stablecoin supply was shrinking before the breach
The contraction did not start with the exploit. DeFiLlama's dashboard put stablecoin market capitalization at $293.8 billion by Nov. 3, down over $10 billion in 30 days. A separate DeFiLlama historical series, which has different coverage, fell from $308.8 billion on Oct. 4 to $303.3 billion on Oct. 27.
A rebound in dollar TVL alone would not show that lending cash had returned.
Source: CryptoSlate
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