DeFi protocol Aave faces major capital flight
The annual percentage yields (APY) on Aave, a cryptocurrency borrowing and lending platform, has now peaked to record levels after capital withdrawals pushed the DeFi, protocol into a liquidity crunch.
While writing this news, variable APY on borrowing stablecoin Dai via Aave has gone up to 24.88 per cent, in comparison to roughly 6.50 per cent a day before.
According to Igor Igamberdiev, a cryptocurrency researcher, blockchain influencer Justin Sun has been responsible for at least billions of dollars in withdrawals in the last few hours.
Aave’s total value locked, or TVL, had fallen to $14.7 billion from the prior value of $17.89 billion a day before.
Aave’s developers have revealed in a series of tweets that the financial modelling platform Gauntlet Network has submitted an Aave Improvement Protocol, or AIP, for disabling the borrowing function for xSUSHI and DeFi Pulse Index (DPI) tokens to register as a precaution.
In addition, the AIP also has called to disable Automated Market Maker, or AMM, liquidity provider tokens on the Aave AMM Market to make an extra safeguard.
Earlier in the week, Aave community members had been voicing concerns regarding vulnerabilities with using xSUSHI tokens as collateral to borrow on the platform.
Aave developers have alleged that the Gauntlet Network has been running simulations to show that exploiting xSUSHI tokens on Aave would not be economically feasible.
However, Aave developers have claimed that the Gauntlet Network has presented the AIP despite these results. The AIP is currently in its voting phase, with “Yes” votes heavily favoured.
Before today’s flight, Aave had been the most popular DeFi protocol, according to rankings by Defi Llama. The platform has gained significant traction among cryptocurrency enthusiasts who are looking to yield farm or register a stable coin loan by pledging their digital currencies as collateral.
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