According to Aave’s most recent announcement, a large CRV loan that was built up in the last week has been mostly cleared by the protocol’s liquidation process. The position, however, is not fully insured, and CRV 2.64 million (approximately $1.7 million in current value) remains. On the protocol, this amounts to 0.1% of the loan amount.
AAVE: The liquidations were successful, but unfortunately, the size of the position left some excess debt within the protocol. In the coming days, the Aave community and its contributors will initiate a discussion in response to this incident. https://t.co/JtAOrwjlDq https://t.co/bxEa4pJKbX
— Wu Blockchain (@WuBlockchain) November 23, 2022
On November 22nd, a whale address (0x57…ce9e) lent 30 million CRV from the Defi protocol Aave and transferred it in three divisions to the OKX exchange. With 92 million CRVs lent and 63.6 million USDCs mortgaged, the CRV loan interest rate on Aave has risen to 265.10%.
Instead of repaying the loan, the trader allowed a total of $63.6 million in USDC collateral to be liquidated. And there wasn’t enough CRV liquidity to make that happen quickly, which left Aave with a bad debt of 2.64 million CRV, loaned CRV that will never be repaid.
Aave explained in a Twitter thread on November 23rd that that “the liquidation was successful.” The majority of the large CRV loans accumulated by this giant whale have been liquidated through the agreement process, but they are not fully covered, resulting in excess debt (0.1%), but emphasizes that there will be a follow-up Complementary mechanism for processing.
Most importantly, today’s events are in contrast to those we have seen with centralized entities in the space – the transactions were entirely traceable and auditable on-chain, providing transparency for users and the community,
Aave added.
The tweet noted that the Aave ecosystem was built with a number of mechanisms that the Aave community can use to cover events like this, including the Safety Module, the Ecosystem Reserve, and the DAO Treasury.
Aave may have avoided a crisis for the time being, but protocol changes may be required to prevent a similar exploit in the future. Aave’s platform currently has more than $6 billion in crypto value. Its ‘V2’ implementation currently has $5.5 billion in Total Value Locked (TVL). This TVL comprises $5.16 billion in ETH and ETH-based tokens, $669 million in wrapped ether (WETH), and $546 million in wrapped bitcoin (WBTC).
