🌕Gauntlet warns of potential cbETH liquidation risk on Aave due to a single large wallet holding a leveraged position using cbETH as collateral♨️📣

By Selena Rose | Selena Rose | 10 Apr 2023


 

🌕AAVE NEWS♨️📣

🌕The convoluted machinations of the financial world have once again caused a stir. A well-heeled trader on the Aave platform has utilized cbETH as collateral to borrow almost $39 million worth of ETH. But this move is with risk. A sharp 9% drop in the price of cbETH against ETH could cause the trader's wallet to be liquidated, potentially creating a domino effect that could impact even more conservative leveraged accounts on Aave. The eminent risk management firm Gauntlet has sounded the alarm bells on this issue, warning that such a cascade could lead to bad debt for the Aave protocol. The trader's wallet has also taken out a similar position on Compound, another primary lending protocol, creating further complexity and uncertainty.

🌕Lending protocols like Aave are constantly grappling with the risk factors involved in various collateral assets, as the potential for bad debt is always lurking around the corner. And with the Ethereum network about to undergo two upgrades, allowing withdrawals of staked ETH for the first time, the cbETH token may face a liquidity crisis, adding another layer of confusion to an already perplexing situation.

🌕AAVE NEWS♨️📣

🌕To leverage staking rewards, the trader borrowed ETH against cbETH, sold the ETH for more cbETH, and redeposited the cbETH in Aave as collateral. This cycle was repeated ad infinitum to avoid putting up the entirety of the $46 million of cbETH upfront, creating an intricate web of financial maneuvering that could easily fall apart under the slightest market turbulence.

🌕Lending protocols like Aave are constantly grappling with the risk factors involved in various collateral assets, as the potential for bad debt is always lurking around the corner. And with the Ethereum network about to undergo two upgrades, allowing withdrawals of staked ETH for the first time, the cbETH token may face a liquidity crisis, adding another layer of confusion to an already perplexing situation.

🌕AAVE NEWS♨️📣

🌕To leverage staking rewards, the trader borrowed ETH against cbETH, sold the ETH for more cbETH, and redeposited the cbETH in Aave as collateral. This cycle was repeated ad infinitum to avoid putting up the entirety of the $46 million of cbETH upfront, creating an intricate web of financial maneuvering that could easily fall apart under the slightest market turbulence.

🌕But the risks don't stop there; with the limited amount of cbETH liquidity available on-chain, any sudden price movement could spell disaster for the trader and, by extension, the entire Aave protocol. The situation is one of delicate balance, where a single misstep could have far-reaching consequences. Only time will tell if the trader's gamble pays off or if it creates a financial crisis that sends shockwaves throughout the industry.

 

📒Reference:

◢ https://thedefiant.io/cryptosat-kzg-message-from-space/

◢ https://governance.aave.com/t/potential-risk-from-cbeth-after-aip-192-gauntlets-analysis/12644

◢ https://thedefiant.io/cryptosat-kzg-message-from-space/

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Selena Rose
Selena Rose

⭐🌷Writer & Graphic Designer🌷✨💫 ⭐🌷IT Engineer🌷✨💫 ⭐🌷Master Of Industrial Management🌷✨💫 ⭐🌷https://twitter.com/selna_rose🌷✨💫 ⭐🌷🌕📌USA🇺🇸,Spain🇪🇸 & Italy🇮🇹🌷✨💫


Selena Rose
Selena Rose

⭐🌷Writer & Graphic Designer🌷✨💫 ⭐🌷IT Engineer🌷✨💫 ⭐🌷Master Of Industrial Management🌷✨💫 ⭐🌷https://twitter.com/selna_rose🌷✨💫 ⭐🌷🌕📌USA🇺🇸,Spain🇪🇸 & Italy🇮🇹🌷✨💫

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