Aave freezes stablecoin trading on Avalanche V3 as activity surges on CEXs

Lending protocol Aave has frozen stablecoins trading and acceptable Loan-to-Value (LTV) ratio to zero successful effect to caller terms volatility connected stablecoins aft the USD Coin (USDC) depegged connected March 11. 

According to the Aave's governance forum, the trading frost follows an investigation from DeFi's hazard manager institution Gauntlet, recommending that each V2 and V3 markets should beryllium temporarily paused.

"Setting LTV to 0 decidedly helps everywhere, but connected the Avalanche v3 Pool, fixed that cross-chain infrastructure doesn’t screen Avalanche, the Aave Guardian tin enactment immediately. Setting LTV to 0 successful practise discounts the “borrowing power” of the asset, without affecting the HF of immoderate idiosyncratic position," noted 1 subordinate successful the forum discussion. 

LTV is an important metric that determines however overmuch recognition you tin unafraid utilizing crypto arsenic collateral. Expressed arsenic a percentage, the ratio is calculated by dividing the magnitude of recognition borrowed by the worth of collateral.

Gauntlet's hazard investigation examined the magnitude of insolvencies that mightiness hap nether antithetic scenarios, considering that the terms of USDC stabilizes, recovers, oregon declines significantly:

"V3 emode assumes correlation of stablecoin assets, but astatine this time, those correlations person diverged. The hazard has accrued fixed that the liquidation bonus is lone 1% for USDC connected emode. To relationship for these assumptions that nary longer stay true, we urge pausing the markets. [...] At existent prices, insolvencies are ~550k. These tin alteration depending connected the terms trajectory and further depegs."

Screenshot - USD balances by protocol and Assets by awesome and protocol. Source Gauntlet Network

Centralized crypto exchanges person seen a surge successful trading measurement successful the past hours pursuing the Silicon Valley Bank (SVB) illness connected March 10, according to integer assets information supplier Kaiko.

— Conor Ryder (@ConorRyder) March 11, 2023

Silicon Valley Bank was unopen down by the California Department of Financial Protection and Innovation connected March 11 aft slope tally triggered by the banks latest fiscal reports showing it had sold a ample chunk of securities worthy $21 cardinal astatine the clip of sale, astatine a nonaccomplishment of astir $1.8 billion. The California watchdog besides appointed the Federal Deposit Insurance Corporation (FDIC) arsenic the receiver to support insured deposits.

Circle, the institution down the USDC, disclosed connected March 11 that $3.3 billion of its $40 cardinal reserves were stuck astatine SBV, starring the large stablecoin terms to autumn beneath its $1 peg and affecting galore stablecoin ecosystems arsenic a result.