In the past two days, approximately $39 million worth of loan positions were liquidated on the Aave protocol. This figure was disclosed by Aave's Chief Strategy and Business Officer, Luigi D’Onorio DeMeo, and reported by The Defiant, which was then echoed by several Chinese cryptocurrency media outlets, quickly becoming the focus of community discussion. The figure is large enough, combined with the connotation of "liquidation" itself which implies losses and bankruptcies, that many people's first reaction was to understand the $39 million liquidation scale as a direct loss for the protocol or the lenders, even extrapolating that Aave's overall security had been severely impacted. DeMeo later emphasized in public remarks that this liquidation scale merely represents the value of the loan positions that were triggered for liquidation and does not directly equate to the actual loss for the lenders or the protocol. The briefing also explicitly pointed out that "the liquidation amount and the lender's loss are two different metrics," attempting to clearly delineate the difference between "positions being processed" and "real financial losses." Understanding this event cannot remain on the shock of a single number but must return to the mechanism of insufficient collateral triggering the liquidation in Aave itself, distinguishing between the liquidation amount, lender losses, and protocol risks; only the differences among these categories provide risk signals that are truly worth breaking down one by one.
What Actually Happened During the $39 Million Liquidation in Two Days
To trace back from the time of reporting, this incident occurred roughly between November 13 and 14, 2026. Luigi D’Onorio DeMeo publicly disclosed that approximately $39 million worth of loan positions were liquidated during this period. In other words, this was a large-scale disposal occurring at the "borrower position level": when the collateral value of certain users’ assets decreases and fails to support their existing loans, these positions are taken over by the system according to preset rules, with the liquidation segment selling the collateral or adjusting the positions to cover the related debts. The $39 million here represents the scale of loan positions included in the liquidation process, not that someone directly withdrew an equivalent amount of assets from Aave's treasury, nor is it a loss figure indicating that a funding pool has been entirely emptied.
The real issue is that what we currently see is only a rough outline of the scene. The existing public materials have not provided specific dates and times for when the liquidation occurred, nor have they indicated whether this $39 million was concentrated in a few large positions that blew up or triggered by numerous small to medium borrowers dispersedly; the type of collateral and loaned assets involved, the proportion of various assets, whether any bad debts were left after the liquidation, and the quantifiable impact on Aave's overall TVL remain in a state of "not yet disclosed." The data currently disclosed relies entirely on Luigi's external explanation, as relayed by The Defiant and several Chinese media outlets, rather than originating from independent on-chain quantitative statistics. This means we can only confirm that there was a liquidation of about $39 million, but we cannot restore a sufficiently detailed risk map in terms of address, asset, and borrower distribution.
The Key Distinction Between Liquidation Figures and Protocol Losses
In the existing public remarks, the only clearly disclosed information is that "approximately $39 million in liquidations occurred in the past two days," along with a key statement added by Luigi D’Onorio DeMeo: this figure represents the value of the liquidated loan positions and does not directly mean a loss for the lenders or the protocol. In other words, the $39 million describes how many positions were taken over and handled by the system, rather than how much money "evaporated" from Aave or the lenders' balance sheets. This is the premise that the briefing repeatedly emphasizes—liquidation amounts and lender losses are two different dimensional indicators and cannot be simply equated.
If we break down the liquidation process, this distinction becomes more intuitive: suppose a borrower collateralizes an asset worth 150 in Aave and borrows 100. When market volatility causes the collateral value to drop, triggering liquidation, the protocol will prioritize selling or disposing of this part of the collateral at a discounted price, using the funds obtained to repay the 100 debt, and then return the remaining value (if any) to the borrower. The entire process's "liquidation scale" can be counted as the total value of the disposed positions, but as long as the proceeds are enough to cover the debt, essentially there has been no bad debt created for the lenders, nor has there been a real loss at the protocol level. A typical misunderstanding in public discourse is seeing a large number such as the "liquidation of $39 million" and instinctively interpreting it as "the protocol or lenders lost $39 million," and in the current situation where there is no publicly available data on bad debt scale, this misinterpretation significantly exaggerates the perceived risk of the event.
How Insufficient Collateral is Handled by Aave On-Chain
From an on-chain perspective, Aave's "liquidation" essentially constitutes an automatic risk reorganization of collateral positions: borrowers first collateralize assets into the protocol's liquidity pool to obtain corresponding borrowing limits; when market volatility leads to a drop in the value of their collateral assets, making it inadequate to support existing obligations, this position is marked as overly risky and enters a liquidatable state. Subsequently, the smart contract will forcibly dispose of this on-chain collateral position according to preset rules, using the disposed collateral assets to repay the corresponding debts, until the liquidity pool is isolated from this high-risk borrowing. In this process, the protocol is concerned with whether "the debt can be covered," rather than "how many collateral positions are nominally liquidated," as the liquidation itself is to cut out positions that have become dangerous from the liquidity pool.
Thus, liquidation in Aave's design resembles a risk management tool rather than a synonym for market panic events. Promptly disposing of insufficient collateral positions on-chain aims to avoid long-term dragging down the liquidity pool, reducing the occurrence of unrecoverable bad debts, rather than actively creating losses or undermining lenders' confidence. However, it is important to emphasize that regarding this approximately $39 million liquidation, existing public materials have not disclosed which specific collateral assets were involved, what corresponding loaned assets they matched, nor indicated where these positions were deployed on-chain. In the absence of such quantitative breakdowns, we can only interpret the situation from the institutional level of Aave's general liquidation mechanism, unable to conduct more detailed case analyses on individual assets or specific on-chain positions' risks.
Misinterpretations of Information from The Defiant to Chinese Media
Tracing back along this information chain, the "liquidation of $39 million" was initially just a technical explanation from executives. The source was Aave's Chief Strategy and Business Officer, Luigi D’Onorio DeMeo, who mentioned in public remarks that approximately $39 million worth of loan positions were liquidated on the protocol in the two days prior to the report, deliberately emphasizing that this was merely the scale of liquidated positions and did not directly equate to the actual losses of lenders or the protocol. The Defiant was the first to write this explanation into a report, where in the original manuscript, the liquidation figure and the clarification that "liquidation amount does not equal losses" were presented side by side. However, as this information continued to propagate along media links—through Chinese media outlets such as Jinse Finance, Odaily Planet Daily, and PANews—what was described in the briefing transformed from a technical explanation into a “multi-source reiteration of a single entity's statement,” rather than conclusions drawn from multiple independent data sources verifying each other.
In this process, the selection of titles and leads became critical nodes for misinterpretation. Chinese reports generally amplified the figure "approximately $39 million liquidation within two days," using it to package a risk narrative, while often downplaying or glossing over DeMeo's technical clarification regarding "the liquidation scale and loss being two different metrics" in the main text. For many readers who only skim the titles or abstracts, "liquidation scale" is simplistically reduced to "loss figure," unconsciously interpreting the protocol's normal operational risk control mechanism as an event where lenders suffered significant losses. Thus, in facing similar reports, readers need to deliberately distinguish the conceptual boundaries in the original technical statements from the emotive expressions in the media's secondary processing, realizing that such reiterations from a single entity resemble an amplified echo of the same narrative, rather than risk conclusions verified by multiple sources.
This Round of Liquidation as a Reminder to Borrowers and the Protocol
Returning to the $39 million liquidation itself, it seems more like a moment of concentrated testing for high-leverage borrowers amid volatility rather than a signal of systemic failure at the Aave protocol level. According to the publicly available materials, there is no evidence of abnormal bad debts or overall abnormalities in the liquidity pool, and reports have repeatedly emphasized that this is a liquidation scale, not a loss figure, which is essential for understanding the entire case. For users who utilize lending protocols like Aave, a more realistic reminder is: they must truly understand the liquidation mechanism and the meaning of various metrics, treating collateral ratios, loan sizes, and trigger lines as risk parameters that can be managed in advance, rather than “black boxes” to be questioned afterward. When choosing leverage, deploying collateral, and monitoring position health, doing an additional layer of self-verification is often more important than subsequent discussions of "exactly who lost how much." What needs to be observed next is whether Aave will supplement with more detailed asset and bad debt data, and whether the market can gradually break free from the inertia of equating liquidation scales solely with losses in similar events, as this will determine whether the next similar event is understood as a normal risk clearance or again misread as a precursor to some systemic collapse.
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