Defi Experiences Second-Toughest Month as Aave V3 Facilitates $285 Million Worth of Liquidations
In the world of decentralised finance (DeFi), the daily volume of active loans on various platforms has been on an upward trend since August 7. This surge has been particularly noticeable on DeFi lending giants like Aave, Compound, and Spark.
According to Token Terminal, the daily volume of active loans peaked at over $10.7 billion on August 13, with Aave, the largest DeFi lending platform by total value locked (TVL), accounting for a significant portion of this figure. However, it's important to note that $285 million of the losses occurred on Aave, underscoring the challenges faced by the platform during this period.
The increase in activity on Aave's V3 platform was the highest since the launch of the V3 platform in April 2022, with the volume of token inflows surging to record levels due to many investors rushing to add collateral to avoid liquidations. This surge came amidst a period of high liquidations on Aave, Compound, and Spark, primarily triggered by rapid market price declines and resulting deleveraging.
Despite these challenges, the DeFi lending market remains active. Studies have shown that liquidations, while highlighting temporary stress and vulnerability points, do not cause a lasting decline in DeFi lending platform usage. In fact, large players tend to transact more frequently though at smaller sizes after liquidations, and smaller players maintain their borrowing volumes.
The broader Ethereum-based lending market has continued to grow, with assets supplied to DeFi lending apps increasing by over 33% in Q2 2025. DeFi lending's dominance over centralized finance (CeFi) lending venues has expanded, signalling robust growth and market confidence despite episodic liquidations.
Moreover, institutional developments such as JPMorgan Chase's plans to introduce Ethereum-backed loans by 2026 are expected to enhance liquidity and mainstream adoption of Ethereum-based DeFi lending, potentially stabilising and expanding the market further.
It's worth noting that on August 6, Aave saw the second-best day in terms of USD inflows, with over $303 million. However, the data from Token Terminal does not indicate any specific mention of liquidations for Compound or Spark in the given context.
Ethereum, the native cryptocurrency of the DeFi ecosystem, has corrected since then, rising 10% over the last week to $2,733. The digital asset lost almost 40% within 10 days leading up to the first week of August, finding support at $2,325, the lowest level since early February.
In August 2024, Ethereum-based lending protocols experienced the second-worst month in terms of liquidations, with a total loss of $431 million. However, it's crucial to remember that these liquidations have not impaired market growth or user engagement significantly, and ongoing institutional interest promises continued liquidity and maturation of the Ethereum DeFi lending ecosystem.
In summary, the high liquidations in August 2024 resulted from sharp price movements and deleveraging pressures disrupting established strategies within Ethereum-based lending platforms. However, these liquidations have not impaired market growth or user engagement significantly, and ongoing institutional interest promises continued liquidity and maturation of the Ethereum DeFi lending ecosystem.
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