Aave froze tBTC, Threshold’s bitcoin-backed token, on its V3 Ethereum Core market on Saturday morning, after Threshold paused new minting and redemptions late on Friday. Risk manager LlamaRisk called it a pre-emptive step in Aave’s governance forum, and Aave said on X its own contracts are not affected.

The rundown

  • What changed: At 22:35 UTC on Friday, Threshold said it had paused new bitcoin deposits, which mint tBTC, and new redemption requests through the Threshold app “as a precaution while security maintenance is completed”. It has not described the maintenance. Pending redemptions may still be paid out on Bitcoin, but final settlement on Ethereum is paused and some transactions may be delayed. Threshold told users not to send BTC to deposit addresses generated earlier, to keep their receipts and transaction hashes, and said the pause “does not affect holding, transferring or using tBTC”. It promised an estimated restart time later. About 11 hours after the pause, at 10:01 UTC, Aave’s guardian multisig froze tBTC on Ethereum Core on LlamaRisk’s recommendation.
  • Why it matters: A freeze stops new tBTC deposits and stops tBTC counting toward new borrowing. Repaying, withdrawing and liquidations still work. tBTC keeps its liquidation threshold, the collateral level at which a loan can be liquidated, so health factors don’t move and no position becomes liquidatable because of the freeze, LlamaRisk said. Ethereum Core was the only Aave market still taking new tBTC borrowing power; the Base and Arbitrum listings were already frozen in earlier rounds of retiring the asset. Other collateral is untouched and no market is paused.
  • Where it breaks: Minting and redemption are what keep a wrapped token at par: if tBTC trades below bitcoin, anyone can redeem it for real BTC and pocket the gap. With redemptions paused, that anchor is gone for now. So far the market isn’t worried. CoinGecko had tBTC at $77,435 against $77,396 for bitcoin at 10:50 UTC. A peg that nobody can test is still a peg, until somebody needs to test it.
  • By the numbers: Aave’s API showed 1,765.02 tBTC supplied on Ethereum Core at 10:49 UTC, about $136.5 million, with only about $199,000 of tBTC borrowed. CoinGecko counts a total supply of 4,185.16 tBTC, so by our arithmetic roughly 42% of all tBTC sits in that one Aave market. For scale, the same market holds about $2.62 billion of WBTC and $1.33 billion of cbBTC. AAVE was $133.25 at 10:50 UTC, up 7.0% in 24 hours.

LlamaRisk says it will propose “restorative measures” once Threshold confirms normal operation.

This is Aave’s second freeze in three days: on Thursday it froze almost all of its markets after the Binance exploit, and nothing links the two events. New to borrowing on-chain? Start with what DeFi lending is.

Read LlamaRisk’s tBTC post in full on the Aave governance forum.

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