{"id":23146,"date":"2023-03-11T12:23:28","date_gmt":"2023-03-11T20:23:28","guid":{"rendered":"https:\/\/coinnetworknews.com\/aave-freezes-stablecoin-trading-on-avalanche-v3-as-activity-surges-on-cexs\/"},"modified":"2023-03-11T12:23:28","modified_gmt":"2023-03-11T20:23:28","slug":"aave-freezes-stablecoin-trading-on-avalanche-v3-as-activity-surges-on-cexs","status":"publish","type":"post","link":"https:\/\/coinnetworknews.com\/aave-freezes-stablecoin-trading-on-avalanche-v3-as-activity-surges-on-cexs\/","title":{"rendered":"Aave freezes stablecoin trading on Avalanche V3 as activity surges on CEXs"},"content":{"rendered":"
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Lending protocol Aave has frozen stablecoins trading and set Loan-to-Value (LTV) ratio to zero in response to recent price volatility on stablecoins after the USD Coin (USDC<\/a>) depegged on March 11.\u00a0<\/p>\n

According<\/a> to the Aave’s governance forum, the trading freeze follows an analysis from DeFi’s risk manager company Gauntlet, recommending that all V2 and V3 markets should be temporarily paused. <\/p>\n

“Setting LTV to 0 definitely helps everywhere, but on the Avalanche v3 Pool, given that cross-chain infrastructure doesn\u2019t cover Avalanche, the Aave Guardian can act immediately. Setting LTV to 0 in practise discounts the \u201cborrowing power\u201d of the asset, without affecting the HF of any user position,” noted one participant in the forum discussion.\u00a0<\/p>\n

LTV is an important metric that determines how much credit you can secure using crypto as collateral. Expressed as a percentage, the ratio is calculated by dividing the amount of credit borrowed by the value of collateral. <\/p>\n

Gauntlet’s risk analysis examined the amount of insolvencies that might occur under different scenarios, considering that the price of USDC stabilizes, recovers, or declines significantly:<\/p>\n

“V3 emode assumes correlation of stablecoin assets, but at this time, those correlations have diverged. The risk has increased given that the liquidation bonus is only 1% for USDC on emode. To account for these assumptions that no longer remain true, we recommend pausing the markets. […] At current prices, insolvencies are ~550k. These can change depending on the price trajectory and further depegs.”<\/p><\/blockquote>\n

Screenshot – USD balances by protocol and Assets by symbol and protocol. Source Gauntlet Network<\/em><\/figcaption><\/figure>\n

Centralized crypto exchanges have seen a surge in trading volume in the past hours following the Silicon Valley Bank (SVB) collapse on March 10, according to digital assets data provider Kaiko. <\/p>\n

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Two big $USDC<\/a> markets on exchanges seeing heavy sell pressure and huge volumes in last 24 hours<\/p>\n

Despite plenty of reassurance on crypto twitter, most investors still selling USDC at a big discount pic.twitter.com\/W9uy2HHax4<\/a><\/p>\n

\u2014 Conor Ryder (@ConorRyder) March 11, 2023<\/a><\/p><\/blockquote>\n

Silicon Valley Bank\u00a0was shut down<\/a>\u00a0by the California Department of Financial Protection and Innovation on March 11 after bank run triggered by the banks latest financial reports showing it had sold a large chunk of securities worth $21 billion at the time of sale, at a loss of about $1.8 billion. The California watchdog also appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver to protect insured deposits.<\/p>\n

Circle, the company behind the USDC, disclosed on March 11 that $3.3 billion<\/a> of its $40 billion reserves were stuck at SBV, leading the major stablecoin price to fall below its $1 peg and affecting many stablecoin ecosystems as a result.\u00a0<\/p>\n