As pressure mounts on the DeFi markets following the KelpDAO-related exploitation crisis, leading industry commentator 0xQuit has issued a notable warning. According to the analyst, the situation on Aave is ‘bad and getting worse’.
0xQuit stated in its assessment that multiple liquidity pools on Aave had reached 100% utilization. This situation, they explained, left lenders locked out of the system and exposed the protocol to an additional risk of ‘bad debts’.
The analyst also argued that interest rates on loans have risen to 10-15%, but this return is insufficient compared to the risk of financing a potential shortfall of around $300 million. 0xQuit stated that the biggest uncertainty in the market is who will bear the rSETH losses, adding that the panic could subside somewhat once this issue is cleared up.
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On the other hand, it was noted that the lack of sufficient communication from both Aave and the relevant infrastructure providers (e.g. LayerZero) in the current process has increased uncertainty. 0xQuit stated: “Markets don’t like uncertainty.”
According to the analyst, even if there is clarity, it will take some time for confidence in DeFi, and especially Aave, to return to previous levels after this event. However, once the uncertainty is resolved, the system can resume operation, albeit at lower levels of the total value (TVL).
*This is not investment advice.