Why is AAVE going down today?
Aave rates spike to 33% as platform faces liquidity crunch
On June 5, the native token of the largest DeFi lending protocol, Aave, fell by nearly 6%. The platform is currently under stress due to a liquidity crunch. This situation has led to a drop in the token’s price, which ranks 30th by market capitalization.
According to CryptoSlate, citing blockchain analyst EmberCN, Aave’s USDT liquidity was affected after a $570 million withdrawal by a wallet linked to Justin Sun’s HTX crypto exchange.This wallet drained $570 million worth of USDT from Aave's lending pool within three hours, reducing available USDT liquidity to $91.95 million.
As a result, platform interest rates spiked: from 3.8% to 29% for deposits, and from 4.4% to 33.6% for loans.
According to EmberCN, the higher rates attract yield-seeking depositors and encourage borrowers to repay loans, potentially stabilizing the liquidity imbalance. However, some large depositors are trapped in the system, unable to exit without slippage or unfavorable rates.
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Platform raises interest rates
Aave ecosystem participants are downplaying concerns, describing the event as a “minor liquidity dip.”
“It’s just Justin Sun messing around again. Not the first time. We’ve got big LPs that will restore normalcy within hours,” said Marc Zeller, founder of the Aavechan initiative.
At the time of writing, AAVE is down nearly 6% in 24 hours and trading around $251. However, the situation could soon improve if new capital flows in to take advantage of the high yields.
Aave remains the dominant protocol in DeFi lending. According to DeFiLlama, it holds over $40 billion in total value locked (TVL), with active loans totaling $16.5 billion.
As we wrote, Aave considers Chainlink integration to address MEV concerns
