A massive amount of Ethereum worth $1.7 billion was withdrawn from the Aave platform over the past week. Members of the Aave community believe that Tron founder Justin Sun withdrew at least $600 million, triggering a wave of market reactions.
A significant outflow has led to a sharp decline in ETH liquidity on Aave.
Ethereum whale movement causes the value of sETH to drop.
The continued flow of Aave whales has increased utilization rates, which in turn has led to rising borrowing prices for ETH. As the cost of borrowing rises, DeFi users relying on leveraged staking strategies have begun to liquidate their positions.
The popular leveraged loop stETH/ETH was one of the most affected strategies. Charts show that the price of sETH dropped from $2800 to $2200 in a straight line on July 14. Users typically deposit ETH, borrow against it, buy stETH, and then repeat the cycle to earn staking yields.
However, rising borrowing prices and the weak peg of the stETH token have rendered this strategy unprofitable. As users start to exit the loop, many rushed to swap stETH for ETH.
This led to congestion in the staking withdrawal queue, which currently takes about 18 days to process. To avoid waiting, some users sold stETH on secondary markets, causing a sharp increase of almost 0.3%.
This slight increase poses significant risks to traders who rely on leverage. A price difference of 0.3% could mean a loss of 3% with 10x leverage, forcing many to endure losses or wait in illiquid positions. The situation could worsen if interest continues to accumulate, potentially leading to liquidations.
Price charts reflect this pressure. The value of Ethereum (ETH) rose by more than 8% over the past week to reach $3,593, but has since retreated from its peak. Meanwhile, the value of synthetic Ethereum (sETH) issued by Synthetix surged by 30.5% during the week, indicating increased demand for alternatives amid volatility.
The event highlights systemic fragility in decentralized finance (DeFi). A single large withdrawal has destabilized lending prices, disrupted popular strategies, and revealed reliance on oracles and delayed recovery mechanisms. As many stETH oracles continue to use redemption prices rather than market prices, lenders remain trapped amid currency price volatility.
