DeFi protocol, Aave, faces major capital flight
The annual rate of return (APY) of cryptocurrency lending and borrowing platform Aave has soared to record levels after capital withdrawals pushed the decentralized finance protocol (DeFi) into a crisis of liquidity. As of press time, the variable APY on the Dai stablecoin loan through Aave has risen to 24.88%, compared to 6.50% the day before.
According the cryptocurrency researcher Igor Igamberdiev, the personality of the blockchain space, Justin Sun, was responsible for at least billions of dollars in withdrawals in the last few hours. The total locked value (TVL) in Aave fell to $ 14.7 billion from $ 17.89 billion the day before, according to data from DeFi Pulse.
In a series of tweets, the developers of Aave revealed that financial modeling platform Gauntlet Network introduced an Aave Enhancement Protocol, or AIP, to disable the lending feature for xSUSHI and DeFi Pulse Index (DPI) tokens as a precaution. In addition, the AIP also called for the tokens of the Automated Market Maker Liquidity Provider, or AMM, to be disabled in Aave’s AMM marketplace as an additional security measure.
Earlier this week, members of the Aave community raised concerns about vulnerabilities in the use of xSUSHI tokens as collateral for loans on the platform. The developers of Aave they alleged that the Gauntlet Network team ran simulations showing that it would not be economically feasible to exploit xSUSHI tokens in Aave. However, the Aave developers claim that the Gauntlet Network introduced the AIP despite these results. The AIP is currently in the voting phase, with the majority of votes favoring “Yes.”
Before today’s capital flight, Aave was the most popular DeFi protocol as ranked by Defi Llama. The platform has a lot of traction among crypto enthusiasts looking for yield farming opportunities or taking out a stablecoin loan by leaving their holdings as collateral.
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