Aave and Lido lose $1.7B in massive DeFi capital drop after the Binance hack
Stablecoin contraction was evident before the breach, while Aave's temporary freeze showed how collateralized loans can coexist with scarce withdrawal cash. Read the full story on CryptoSlateUnderstand the crypto stories that matter and what to watch next. Get The Catalyst in your inbox
Binance's security breach hit a crypto market whose stablecoin market was already shrinking, as DeFiLlama's dashboard put stablecoin market capitalization at $293.8 billion by Nov. 3, down over $10 billion in 30 days.
Binance's Nov. 3 report estimated that approximately $6.34 billion in assets were impacted on October 29 and said the company would absorb the financial impact.
The exchange's Oct. 29 incident added a separate shock to decentralized lending when an exploiter-linked wallet supplied USDT to the Aave lending protocol.
Aave's risk service provider LlamaRisk reported that an exploiter-linked wallet supplied 60 million USDT and borrowed 19,762 units of Wrapped Ethereum (WETH), worth about $44.6 million at the time.
Its Oct. 30 assessment described the position as overcollateralized and subject to normal liquidation, and said it did not put suppliers at risk.
Guardians subsequently froze 175 Aave V3 reserves and 117 V4 reserves. New supply and borrowing stopped in frozen reserves, while repayments, withdrawals and liquidations remained enabled.
Suppliers could withdraw available tokens, but fresh deposits could not replace them. LlamaRisk said withdrawals pushed some large reserves to 92%-100% utilization, meaning almost all supplied funds were borrowed. Borrowing costs rose, and stewards temporarily reduced the upper part of the interest-rate curves.
The affected reserves had reopened by Oct. 31, and LlamaRisk reported on its Nov. 2 update the restoration of specified non-stablecoin collateral settings and said affected reserves had returned to pre-incident rate curves on Nov. 1.