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The DeFi protocol AAVE is dealing with bad debt and centralized points of failure

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AAVE protocol

AAVE’s platform currently has more than $6 billion in crypto value. Its ‘V2’ implementation currently has $5.5 billion in Total Value Locked (TVL).

This TVL is comprised of $5.16 billion in ETH and ETH-based tokens, $669 million in wrapped ether (WETH), and $546 million in wrapped bitcoin (WBTC).

According to DeFiLlama, a popular metrics website, $1.7 billion of the $5.5 billion total is borrowed. The website also listed $350.3 million in assets that could be liquidated immediately, which was the second highest of any DeFi application.

DeFiLlama also mentioned an AAVE-controlled Ethereum wallet that currently holds $144 million in tokens, the majority of which are AAVE-wrapped ether (aWETH) and AAVE-wrapped bitcoin (aWBTC).

This address’s transaction data indicates that the wallet receives high-value ETH transactions from centralized exchanges such as Bitfinex.

It also frequently interacts with one of the official USD Coin wallets provided by Centre. On November 21, for example, it received three transactions from a Bitfinex hot wallet totaling 1,250 ETH, slightly more than 16,622 ETH, and nearly 10,000 ETH.

An Ethereum address labeled Aave: Genesis Team in Etherscan currently holds $82 million in Ethereum tokens. According to a recent snapshot by DeBank, it is worth $74 million and has $7 billion in USDC-owed debt.

On November 17, 2022, the Aave: Genesis Team wallet received a transfer of 7.2 million USDC. It quickly transferred 7 million USDC to AAVE V2 in a’repay’ transaction.

These transactions indicate that the address’s controller is withdrawing USDC from an exchange in order to repay the loan.

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