After capital withdrawals caused a liquidity crisis in the Decentralized Finance protocol, or DeFi protocol, decentralized finance (or DeFi) protocol, annual percentage yields or APY on crypto borrowing and Aave lending platform have risen to new records. Variable APY for borrowing stablecoin Dai via Aave rose to 24.88% as of the time this article was written, up from approximately 6.50% one day earlier.
Igor Igamberdiev (crypto researcher) claims that Justin Sun, a blockchain personality, was responsible for billions of dollars worth of withdrawals over the last few hours. Based on DeFi Pulse data, Aave’s TVL (total value locked) fell to $14.7 Billion from $17.89 Billion the day before.
Aave developers disclosed in a series tweets that Gauntlet Network, a financial modeling platform, had submitted an Aave Improvement Protocol (or AIP) to disable the borrowing function of xSUSHI tokens and DeFi Pulse Index(DPI) tokens. This was done as a precautionary step. The AIP also requested that Automated Market Maker (or AMM) liquidity provider tokens be disabled on the Aave AMM Market to add extra protection.
Aave members expressed concerns earlier in the week about the vulnerability of using xSUSHI tokens to secure borrowing on the platform. Aave developers claimed that simulations by Gauntlet Network showed that it was not economically feasible to use xSUSHI tokens on Aave. Aave developers claim the Gauntlet Network submitted the AIP despite these results. The voting phase for the AIP is currently underway, with “Yes” votes strongly favored.
Aave was the most-popular DeFi protocol according to Defi Llama before today’s flight. This platform is very popular among cryptocurrency enthusiasts who want to yield farm their digital currencies or obtain a stablecoin loan.