Decentralized Lending Protocol Aave processed millions of liquidations on Monday without building new unrecassible debts, with the resilience during market volatility, according to data from Chaos Labs.
The Cryptomarkt wilt early on Monday, with the price of Bitcoin (BTC) to almost $ 91,000 from $ 100,000 as a concern about a renewed trade war between the US and its top partners Canada, Mexico and China sent shock waves through financial markets. The slide returned later in the day after President Donald Trump paused the rates on Mexico for 30 days.
The solid two-way price campaign led to margin shortages, which resulted in massive liquidations, the forced closure of positions on centralized and decentralized trading roads. Only Aave processed $ 210 million in liquidations, the highest single-day count since the crash of 5 August, the data shows. What is even more important is that the protocol is avoided to assume new bad debts.
The protocol builds up bad debts when borrowers do not repay their loans and the collateral provided is insufficient to cover the outstanding amounts. The risk is higher during volatile market conditions, such as the one on Monday, when the competitive price drops and the low demand hinders the effective liquidation of the collateral.
“Liquidations were efficiently carried out on the protocol, most of which were performed at Ethereum’s most important body. The robust risk management mechanisms within Aaave ensured that the colland positions were arranged as intended, so that the protocol losses were minimized,” said Chaos Labs on X.
Aave has essentially received the stress test of the market, which demonstrates the efficiency of its risky measures and liquidation mechanisms. The existing poor debts even fell by 2.7% due to the decrease in the value of the debt activa.
Pseudonymous Defi observer Leo greeted Aave’s performance as proof of the strong basis of the decentralized finances, including “rigorous selection and management by governance, efficient protocol design for liquidations, thick liquidity pools in the ecosystem.”
Thankful upgrades such as Aave V3.3, V4 and the umbrella updates indicate a promising future for the Defi industry, Leo said.
Version 3.3, announced in December, introduces a function to absorb and erase uncolked poor debts of liquidations, allowing umbrella to process an automated debt management system, risk and lower protocol obligations. The version also helps to control the structure of so -called dust debt, which are small amounts of debts that are difficult to erase or to liquidate because of their negligible value.
