Liquidity recovery tokens and yield-bearing stablecoins faced brief volatility but quickly recovered.
TAKEAWAY KEY
Aave successfully executed $300 million in liquidations during the market crash, contributing $6 million in profits to its DAO.
Liquid recovery tokens and yield-bearing stablecoins experienced brief depegs but quickly recovered, indicating market stability.
DeFi protocols showed resilience during this week’s market crash, with Aave facing its largest-ever liquidation of $300 million on the Ethereum mainnet. According to IntoTheBlock, the bulk of the liquidation occurred from stablecoin loans against wstETH, a wrapped liquid staking token offered by Lido.
Despite ETH falling by 25% in a week, the liquidation was successfully executed, rebalancing the protocol and contributing $6 million in profits to the Aave DAO.
In particular, the settlement of hundreds of millions in liquidations occurred without relying on a central point of failure, all executed automatically by smart contracts.
Liquid restaking tokens (LRTs) and yield-bearing stablecoins experienced brief deviations from their pegs. EtherFi’s eETH, the largest LRT by market cap, fell as much as 2% during Monday’s crash but recovered within six hours. Non-fungible LRTs faced steeper depegs but also recovered most of their discounts.
USDe Ethena maintained its peg to the dollar, with its supply decreasing by $100 million due to redemptions. The stablecoin did not depeg more than 0.5% despite market volatility.
Overall, both new and established decentralized finance (DeFi) protocols have weathered the macro storm, demonstrating the industry’s ability to withstand harsh conditions without external disruption.
Additionally, the total value locked (TVL) in DeFi applications shrank by 10% after the August 4 crash but managed to recover all the value lost during the correction, standing at over $128 billion. In 2024, the TVL of DeFi applications rose by 41%, according to data from DefiLlama.
The crypto market downturn was part of a broader global deleveraging event, triggered by the unwinding of yen carry trades after the Bank of Japan hiked interest rates to 0.25%. This led to a spike in the yen and a broad sell-off in assets, causing the correlation between crypto and stocks to hit a six-month high.
