UPDATED 14:52 UTC, 30 Oct: Aave is unfreezing. LlamaRisk said at 13:49 UTC that the guardians will roll back the freeze in four waves: unfreeze the V3 reserves with LTV, the share of collateral value you can borrow against, held at zero; give “keep-list” V4 reserves a collateral factor of zero (already done); restore LTV on most V3 reserves; then unfreeze V4. Aave’s own API showed the main Ethereum V3 markets, including USDC, USDT and WETH, no longer frozen at 14:52 UTC, with WETH back at an 81% LTV.

Nine assets stay at zero borrowing power for now: USDT, USDC, USDT0, POL, WAVAX, sAVAX, XAUt, PAXG and OP, including bridged and wrapped versions, on every market where they are listed. These are “the assets held across the exploiter’s address cluster”, LlamaRisk said. You can still supply, withdraw, borrow and repay them; they just cannot back new loans. Existing V3 positions keep their liquidation thresholds, so health factors do not change. Both the 10% rate ceiling and the cap cuts described below have been executed. (LlamaRisk on the Aave forum)

Aave froze its lending markets on Thursday night after a wallet linked to the Binance hack supplied 60 million USDT and borrowed 19,762 WETH, worth about $44.6 million, between 20:58 and 21:01 UTC, risk manager LlamaRisk said in Aave’s governance forum. The markets are still frozen. On Friday LlamaRisk proposed two fixes for the meantime: cheaper stablecoin borrow rates and much tighter borrow caps.

The rundown

  • What changed: Between 21:42 and 23:04 UTC, Aave froze 175 reserves on V3 across 16 networks and 117 on V4 across four, according to LlamaRisk. A frozen reserve takes no new deposits or loans, but repayments, withdrawals and liquidations still work. The Horizon market for tokenized real-world assets stayed open, because its collateral is permissioned and the exploiter cannot use it. LlamaRisk says the markets stay frozen until the exploiter’s funds stop moving and there is “more clarity on the containment from Binance’s side”, followed by a staged unfreeze.
  • Why it matters: A freeze has a side effect. Big suppliers kept withdrawing, so utilization, the share of deposits lent out, hit 92% to 100% on the largest stablecoin reserves, pushing borrow rates to between 10% and 36% APR and up to 55% on some, LlamaRisk said in a rate proposal. Borrowers can’t add collateral to a frozen reserve, so that interest just eats their health factors. The fix: cut Slope2, the steep part of the rate curve, so no rate tops 10% at full utilization. On V3 Core, USDC and USDT go from 10% to 5.5%. LlamaRisk calls it temporary.
  • Where it breaks: Reopening. The exploiter “still holds large ETH, stablecoin and governance token balances”, LlamaRisk wrote at 10:11 UTC, and “a reopened market with this headroom would let a single actor build a large position in the first blocks after the unfreeze”. So it proposed cutting caps to about 2% above pre-exploit borrowing. Think of it as locking the fridge before the guest wakes up: it also locks out everyone else who wanted to borrow more, until caps are raised again after a 36-hour cooldown.
  • By the numbers: The exploiter’s Aave position holds $59.9 million of USDT against $43.8 million of debt, so it is over-collateralised and can be liquidated as normal, LlamaRisk said. The cap cuts remove about $3.7 billion of unused capacity on V3 and $130 million on V4. The V3 Core WETH cap falls from 2.4 million to 1.79 million, USDT from $3.09 billion to $2.56 billion, USDC from $2.70 billion to $2.27 billion. GHO, Aave’s stablecoin, dipped to about $0.997 overnight and was $0.998 on CoinGecko at 10:54 UTC. AAVE was $124.86, down 6.2% in 24 hours. DefiLlama showed $14.58 billion in Aave V3 TVL, against the $16.93 billion we noted on 23 Oct; lower token prices explain part of that.

One position, three minutes, and an entire protocol on ice. The fact that it was over-collateralised is the good news.

Last week Aave was expanding V4 with the first outside-curated Aave V4 markets. New to borrowing on-chain? Start with what DeFi lending is.

Read the cap proposal in full on the Aave governance forum.

This article is for information only and is not investment advice.