Aave freezes low-liquidity pools

Last week, the Ethereum-based decentralized lending protocol Aave was left with $1.6M of bad debt due to a massive CRV sale.

Aave, the leading DeFi protocol with over $5B of total value locked, has accepted a proposal by Llama and Chaos Labs, which asked to pause volatile assets due to low liquidity, following the Nov. 22 Avraham Eisenberg’s borrowing of millions of CRV to short-sell. The trader is also behind the Mango Markets exploitation of $116M in October.

While the attack on CRV from Aave seemed to backfire and resulted in losses for the exploiter, due to Curve’s released whitepaper on the upcoming stablecoin and Aave’s reassurance of having funds to cover $1.6M bad debt, the protocol decided to temporarily halt 17 low-liquidity pools.

The pools 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. Because assets in those pools are frozen, users cannot borrow the assets or put their holdings on the protocol.

Related: Mango Markets Drained of $100 Million in Hacker’s Attack

The already approved Aave DAO community proposal said:

“In response to recent market events and the continued contraction of liquidity across markets, this proposal seeks to reduce the risk profile across many higher volatile assets”

The proposal eventually led the protocol from Version 2 to Version 3. The delist or relist of those currently frozen pools would depend on further market performance and liquidity and usage levels. The proposal also points to the low-risk tolerance of community members at the current bear market.

Related: Crypto Digest From TradeCrypto.com #176

AAVE grew on the news, from $56 on Nov. 22 to $60 today. According to Defiant’s Terminal, AAVE has been around 30% down in the past month.