The decentralized lending protocol, Aave, has temporarily paused lending markets for 17 Ethereum-based tokens. This is an effort by the protocol to protect itself from accumulating bad debt due to future market manipulation attacks.
Aave's decision to momentarily freeze the lending of several tokens on Aave version 2.0 was approved following a circulated proposal. The approval was granted by its governance members. The proposal came from Llama and Chaos Labs, who asked that assets considered volatile due to low liquidity profiles on Aave be paused.
This decision was also in line with the recent event that occurred on the protocol. Some days back, a trader borrowed 92 million CRV ($57 million) on Aave and sold the tokens continuously, leading to a sharp decline in the CRV price.
Aave successfully addressed the liquidation cycle in the CRV pool, but the size of the position left about $1.6 million in debt within the protocol.
Aave stated that it had enough funds to compensate for the debt. However, such events will be stopped by freezing low-liquidity asset pools.
According to the proposal,
“Given that the market situation of these assets is currently volatile, out of an abundance of caution, we recommend temporarily freezing the following markets.”
The lending markets which were paused are yearn.Finance, Curve DAO, 0x, Decentraland, 1inch, Basic Attention Token, Ampleforth, DeFi Pulse Index, renFIL and Maker, Enjin, xSUSHI and five stablecoins: sUSD, GUSD, RAI, USDP, and LUSD.
For risk management, the protocol will not allow users to deposit these assets or obtain loans with them on the platform. This will help minimize the risk profile across the many higher volatile assets.
It is worth knowing that Aave is the largest lending protocol on Ethereum, with $3.65 billion in assets locked across multiple chains.
