A total of $1.7 billion worth of Ethereum (ETH) withdrawals from decentralized finance (DeFi) protocol Aave in the past week have caused significant market volatility.
This move by giant investors significantly reduced liquidity on the platform, briefly pushing borrowing rates above 10%.
While this increase meant short-term gains for users who deposited their Ethereum to lend on Aave, it turned into a full-blown crisis for investors who implemented strategies to increase their Ethereum staking returns, called “looping.”
Looping investors were earning profits by reinvesting Ethereum they had borrowed at low interest rates. However, a sudden increase in interest rates made this strategy unprofitable and led to losses. As a result, many investors quickly closed their positions and began unstaking their Ethereum through liquid staking providers.
With these developments, the Ethereum network’s outflow queue has reached a record high. According to data from Beaconcha.in, as of Wednesday, the amount of Ethereum waiting to be unstaking had risen to 627,944 (approximately $2.3 billion). It will take the network approximately 11 days to process this volume of transactions.
The majority of the withdrawals reportedly belonged to a few large investors. Aave developer Marc Zeller said he believes cryptocurrency billionaire and Tron founder Justin Sun is behind these transactions. Zeller noted that Sun frequently deposits and withdraws large amounts of money from Aave and that his behavior is unpredictable.
Wallets associated with Sun on the Arkham platform have withdrawn $646 million worth of Ethereum from Aave over the past three days. Additionally, a wallet belonging to HTX, the crypto exchange for which Sun is an advisor, has withdrawn a net $455 million worth of ETH over the past week.
Wallets attributed to Sun still hold $80 million worth of Ethereum on Aave, according to Arkham data. Sun declined to comment.
Not only large investors, but also smaller funds like London-based Abraxas Capital Management have withdrawn ETH from Aave. Abraxas withdrew $115 million worth of Ethereum in the past week.
*This is not investment advice.
