Image Credit: aave.com
- Aave froze numerous reserves following a Binance hack, blocking new deposits and borrowing.
- Existing borrowers can still repay debt and make withdrawals, but cannot add collateral.
- LlamaRisk stated that reopening depends on Binance containing the attacker's funds.
Aave has frozen new deposits and borrowing across hundreds of reserves after the Binance hack, leaving existing borrowers unable to add collateral during the crypto selloff.
Repayments, withdrawals and liquidations remain enabled. Borrowers can still reduce their debt to improve their positions, but the usual collateral top-up option is blocked.
Borrowers Can Repay Debt but Cannot Add Collateral
That leaves borrowers with one fewer way to defend their positions as prices fall. Declining collateral values can push loans closer to liquidation, even while new borrowing is frozen.
Repaying part of a loan reduces the debt backed by the remaining collateral. Positions can still be liquidated if their health factor, Aave’s measure of borrowing safety, falls below 1.
Withdrawals depend on available liquidity. Borrowers using supplied assets as collateral also cannot withdraw amounts that would leave their loans below the protocol’s required safety level.
Attacker Borrowed $44.6 Million Before the First Freeze
Risk manager LlamaRisk traced a wallet linked to the Binance attacker supplying 60 million USDT to Aave’s V3 Ethereum Core market between 20:58 and 21:01 UTC on Oct. 29. It borrowed 19,762 wrapped Ether (WETH), worth approximately $44.6 million at the time.
The borrowing preceded the first freeze by about 40 minutes. LlamaRisk described the position as overcollateralized, meaning its collateral exceeded its debt, and said it remained subject to normal liquidation.
Aave’s emergency guardians froze 175 V3 reserves across 16 networks and 117 V4 reserves across four networks. The transactions ran from 21:42 to 23:04 UTC on Oct. 29.
The restrictions aimed to prevent further deposits of stolen assets following Binance’s breach. Horizon, Aave’s market for permissioned real-world assets, remained open because its collateral restrictions prevented the attacker from using it.
Reopening Depends on Containing the Attacker’s Funds
LlamaRisk said markets would remain frozen until the attacker’s funds stopped moving and Binance’s containment became clearer. It would then coordinate a staged reopening with Aave Labs and other service providers.
The freeze also creates pressure on borrowing costs. Supplier withdrawals reduce the funds available in lending pools, while replacement deposits remain blocked, potentially driving interest rates higher.
LlamaRisk separately proposed temporary interest-rate reductions after withdrawals pushed several major stablecoin reserves close to fully borrowed. Those changes aim to slow the growth of borrowers’ debt while the restrictions remain in place.
