In a year when the bear market has hammered crypto investors and bankruptcies have spread contagion across the DeFi industry, it was only a matter of time before the bill arrived. That time, it seems, is now. Bad debt is piling up in many decentralized lending protocols, according to data from RiskDAO. This includes, for example, the major money markets Aave, Venus and Abracadabra.
the exception
The Venus Protocol tops the list with $52 million in bad debt. Next comes Iron Bank with over $27 million and Inverse Finance with nearly $15 million. Inverse Finance and Iron Bank have the highest debt-to-TVL ratio at 85% and 13%, respectively. The Venus went through a series of liquidations totaling $200 million in May 2021 and was saddled with $100 million in debt; some of the red ink on your balance sheet could date back to that event.
market conditions
Abracadabra incurred $12 million in bad debt amid the collapse of Terra and its stablecoin UST, according to Autism Capital, a popular crypto analyst. autism tweeted that debts stemmed from liquidations that could not be processed quickly enough to keep up with rapidly changing market conditions. MakerDAO, a collateralized debt protocol, is the exception, being the only loan protocol with a total locked-in value (TVL) of more than $10 million that has no bad debts on its books, according to RiskDAO .
Crypto lending protocols with the highest default sums incurred. Source: RiskDAO The Compound, Inverse Finance and Aave protocols did not immediately respond to requests for comment. The Defiant could not reach representatives from Venus, Iron Bank and Abracadabra for comment.
Eisenberg effect
The susceptibility of crypto lending protocols to defaulted debt, particularly in money markets, was highlighted when Avraham Eisenberg, a trader, exploited Mango Markets at $116 million in the month of October. the invader borrowed the protocol’s native MNGO token before executing a trade designed to give the impression that MNGO had surged from $0.03 to $0.91 for Mango’s data oracles. So they borrowed $116 million in other assets using the MNGO token as collateral. This eliminated all liquidity from the protocol and left it with nine-figure bad debts. Eisenberg attempted to replicate the same “profitable trading strategy” he used to attack Mango Markets on Aave, the leading financial market by TVL, in the month of November. While Eisenberg lost money in his attempt to outsmart Aave’s CRV oracle, the attack left Aave with $1.6 million in bad debts on its books. Aave then responded by disabling pools of assets deemed illiquid to prevent other traders from trying to emulate the strategy. RiskDAO estimates that Aave has incurred $2 million in bad debt on a total of 4,924 failing accounts. Compound, the third-largest DeFi money marketplace, has also placed restrictions on the size of loans borrowed from the protocol’s least liquid pools. RiskDAO estimates that Compound has incurred $65,710 in bad debts, as well as 1,105 failing accounts. *Translation of the article Bad Debt Piles up at DeFi Lending Protocols with permission from The Defiant
Warning: The text presented in this column does not necessarily reflect the opinion of CriptoFácil. Read also: Ambev Brewery launches Web3 game and NFTs value 415% Read also: Don’t lose hope, bull market will occur in 2023, says Bloomberg analyst
