In the past 24 hours, major altcoins have seen significant declines, led by a double-digit drop in XRP, which focuses on payments, and an 8% drop in SOL. The CoinDesk 80 index, which tracks altcoin performance, has dropped by over 7%, while the CoinDesk 20 index, which is dominated by Bitcoin and Ethereum, has fallen by 4%.

The recent surge in unstaking appears to be driven by skyrocketing Ethereum borrowing rates on decentralized platforms like Aave, which has diminished the appeal of circular strategies designed to enhance Ethereum staking yields.

Typically, these strategies involve users depositing liquidity staking tokens (LST) or liquidity re-staking tokens (LRT) as collateral on platforms like AAVE and borrowing ETH. The borrowed ETH is then converted back into LRT and LST and re-deposited, forming a loop. This strategy is effective when staking yields exceed borrowing costs.

However, as borrowing costs rise, the loop may reverse, leading traders to rush to repay loans, exit LST/LRT, and reclaim ETH.

"The real trigger has been the spike in ETH borrowing rates since July 16 (peaking at 18%). This has forced significant unwinding of ETH leverage loops on Aave, as negative yield spreads crushed profitability. Pseudonymous observer Degen Station pointed out on X that traders are eager to repay loans, exit LST/LRT positions, and reclaim ETH—resulting in depegs and queue congestion.