Chaos Labs: Aave's $4.7B Exposure to Ethena Could Trigger "Liquidity Crunch"

By: theblockbeats.news|2025/08/05 11:42:19
0
Share
copy

BlockBeats News, August 5th, according to DL News, Aave's risk advisor Chaos Labs stated that as the deposit amount of the US dollar-pegged token USDe in the protocol continues to increase, Ethena's USDe stablecoin may pose a threat to Aave's robustness and trigger liquidity crunch. Chaos Labs discussed the potential risks of Aave's exposure to Ethena, which has been increasing, in a post released on Saturday on the Aave governance forum. Chaos Labs pointed out that when USDe holders deposit a large amount of the token into Aave, and its issuer Ethena simultaneously lends out the stablecoin backing that asset, a significant risk is formed. Ethena must avoid overallocating its stablecoin reserves to Aave. Self-imposed limits on such exposure help ensure redemption reliability and market stability. Ethena has not immediately responded to a request for comment.

Ethena has deposited $580 million of USDe-backed assets into Aave, a strategy known as rehypothecation. In addition, Aave's current $4.7 billion exposure comes from USDe-backed assets, including PT and sUSDe, accounting for over 55% of USDe's total supply. Chaos Labs stated: "The dual role of backed assets, serving as both Aave's redemption capital and liquidity, has created a vulnerability that could exacerbate pressure on both protocols during a deleveraging event." Due to the growth and contraction cycles of the support mechanism, in a bearish market, if the backed assets are borrowed, USDe holders' redemptions may pose issues, with the circular strategy amplifying the risk, potentially leading to Aave's liquidity crunch, rising borrowing rates, and triggering a chain reaction. However, there is currently no immediate cause for concern, as the unwinding of contraction cycle positions may offset the surge in utilization. But as USDe grows or rehypothecation increases, the situation may change. Chaos Labs is developing a new risk prediction tool to adjust rates, ensuring orderly redemptions during periods of market stress.

You may also like

Ethereum Repricing: From Rollup-Centric to "Security Settlement Layer"

Ethereum's strategic focus is returning to the mainnet, establishing "settlement assurances" and reinforcing security to build its core value proposition, shifting valuation logic from fee revenue reliance to a security- and soundness-based protocol premium.

Stop Talking About Gold, Bitcoin Is Not a Safe Haven Asset

One cannot rely on macro narratives like "Gold Rotation" to determine whether Bitcoin has bottomed. True bottom signals will only appear during position unwinding and extreme pessimistic sentiment.

Aave Founder: What Is the Secret of the DeFi Lending Market?

When on-chain lending becomes significantly cheaper to operate end-to-end compared to traditional lending, mass adoption becomes not a question of if, but of when.

The Trader's Playbook: 7 Market Cycle Lessons From LALIGA’s 90 Minutes

What do LALIGA matches teach about crypto markets? Learn how consolidation, breakouts, and late-cycle volatility shape disciplined trading decisions.

How Smart Money Tracker Survived Live AI Trading at WEEX AI Hackathon

Discover how WEEX AI Trading Hackathon tested strategies with real capital—no simulations. See how Smart Money Tracker survived flash crashes and leveraged 18x in live markets.

80% Win Rate to 40% Drawdown: An AI Trader's Brutal Recalibration at WEEX AI Wars

Dive into the technical blueprint of an AI trading system built on LLaMA reasoning and multi-agent execution. See how Quantum Quaser uses confidence thresholds & volatility filters at WEEX AI Wars, and learn the key to unlocking 95% win rate trades.

Popular coins

Latest Crypto News

Read more