DeFi platform Aave (AAVE) has frozen stablecoin deposits and set their LTV to zero on Aave Avalanche V3 to reduce volatility risks caused by USDC’s price drop.
Earlier, risk management firm Gauntlet suggested pausing Aave V2 and V3 stablecoin markets after Circle-issued USDC lost its USD peg.
According to Gauntlet, its risk analysis revealed that many insolvencies could arise due to the high volatility of USDC. The proposal also extends to Avalanche (AVAX), Polygon (MATIC) and other marketplaces that support emode (Efficiency mode) on Aave Avalanche V3.
Gauntlet’s proposal to halt all stablecoin markets on Aave protocol has received a lot of support from the community, with developer ChaosLabs adding,
“We support the proposal of freezing all stablecoins on Avalanche by setting LTV to 0. In addition, we recommend pausing stablecoin markets across all Aave deployments as a temporary phase until USDC, DAI, and other stablecoin peg situations clarify.”
Soon, Web3 developer BGD Labs confirmed that Aave has frozen deposits and borrowing facilities for USD Coin (USDC), Tether (USDT), Dai (DAI), Frax (FRAX), and MAI (MIMATIC).
Meanwhile, USDC has resumed an uptrend in its price. The stablecoin, however, has not regained a 1:1 peg to USD yet. As of writing, USDC's price hovers at the $0.98 mark.