Aave unfroze all its V3 and V4 lending markets on Oct. 30, but nine assets still cannot back new loans. The restriction follows the Binance wallet incident, and borrowing capacity is smaller than before the freeze.
Aave unfroze all its V3 and V4 lending markets on Oct. 30 after a precautionary response to the Binance wallet incident. Nine assets, however, remain unable to back new loans.
According to Aave: "will temporarily remain at an LTV of 0," naming USDT, USDC, USDT0, POL, WAVAX, sAVAX, XAUT, PAXG and OP. That means they cannot serve as collateral for new borrows.
What the zero-LTV limit covers
Aave risk service provider LlamaRisk said the restrictions cover bridged and wrapped versions on every market where the assets are listed, including V3's E-Mode borrowing configurations. It said these are assets held across the Binance exploiter's wallet cluster.
The limit blocks borrowing against the assets, not borrowing the assets themselves. Users can again supply, withdraw, borrow and repay the listed tokens, LlamaRisk said.
For V3 borrowers, the restriction leaves existing liquidation thresholds unchanged, so it does not itself change their health factors. V4 borrowers keep their existing collateral configuration until certain interactions move them to the new zero-collateral-factor configuration, LlamaRisk said.
Why Aave froze the markets
LlamaRisk reported that a wallet in the exploiter's cluster supplied 60 million USDT on Aave V3 Ethereum Core on Oct. 29 and borrowed 19,762 WETH, worth about $44.6 million at the time. It described the position as overcollateralized and subject to normal liquidation.
The risk provider said it opted for a broad freeze because the exploiter could swap funds into any listed asset. The freeze blocked new deposits and borrows, while withdrawals, repayments and liquidations continued. Aave said its contracts were unaffected and positions remained fully collateralized.
Borrowing headroom shrinks
Reopening does not restore all previous borrowing capacity. LlamaRisk said it executed borrow- and draw-cap reductions that removed about $3.7 billion of unused borrowing capacity on V3 and $130 million on V4 before markets reopened.
LlamaRisk said it will evaluate and publish the conditions for restoring collateral borrowing power to the restricted assets, while it keeps monitoring the exploiter's wallets and Aave's price feeds.
Source: The Defiant
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