Aave at Risk of $300M Liquidation During Ethereum’s Decline
Aave, a prominent player in the crypto space, faced a challenging week as it grappled with a staggering $300 million in liquidations triggered by a sharp decline in Ethereum prices.
The Aave protocol encountered its largest liquidation event to date, resulting in approximately $300 million in liquidations, according to data from IntoTheBlock. The liquidations stemmed from stablecoin loans backed by wrapped staked Ethereum (wstETH) as collateral. The significant drop of 25% in Ethereum’s price led to many borrowers’ collateral positions becoming undercollateralized, prompting the automatic execution of liquidations by Aave’s protocol mechanisms to maintain financial stability.
Despite the turmoil caused by these massive liquidations, the protocol managed to generate around $6 million in profits from the liquidation fees incurred during these events. However, Aave’s token, AAVE, ended the week on a downward trajectory, marking it as one of the major losers in the past week. The protocol’s Total Value Locked (TVL) remained around $11.7 billion without any noticeable increase.
In terms of token valuation, AAVE experienced declines, with its price dropping from approximately $101 to $93 within a span of days. The Relative Strength Index (RSI) indicated a shift towards a bearish trend, with the current RSI hovering around 45, suggesting selling pressure on the asset.
Regarding Aave Futures, the funding rate exhibited significant volatility, fluctuating between negative and positive values. The funding rate, which was positive at approximately 0.0021% at the close of trading on August 10, turned negative, reaching around -0.009% at the start of trading on August 11. This swing indicated changing market sentiment and trader behavior, with negative funding rates suggesting a prevailing bearish sentiment.
The funding rate’s subsequent recovery to a positive 0.004% highlighted the uncertain market conditions, with traders swiftly transitioning between bullish and bearish positions based on immediate market sentiment and conditions. This fluctuation underscores the dynamic nature of the crypto market and the rapid shifts in trader sentiment.
