Many people haven't realized how bad @ aave's current situation is The utilization rate of all core markets has reached 100%, including 3 billion USDT and 2 billion USDC that are stuck This means you can't even come up with your own money Below is a detailed explanation of why things turned out this way and how they got there step by step When rsETH was exploited and AAVE had bad debts, Justin Sun, MEXC exchange, and other whale users withdrew billions of dollars from AAVE as soon as possible This directly drained the already limited liquidity in core markets such as ETH, USDT, and USDC. The person who ran first ran away, and the person who took a step slower was directly trapped At the beginning, the ETH market reached a 100% utilization rate, which means you can no longer withdraw ETH from AAVE Even worse, this means that once the ETH price drops or crashes, the protocol cannot even handle ETH clearing. If ETH cannot be sold, debts cannot be covered by liquidation That is to say, as long as these markets continue to stagnate, the risk of AAVE expanding bad debts will become increasingly high However, ETH deposit users can still sell aETHwETH tokens at a small discount on aggregators such as Uniswap. This is the last door that ETH depositors on AAVE can still walk through But depositors of USDT and USDC are not so lucky, they are really locked up Because AAVE has lost over $6 billion in liquidity in the past 24 hours. After the whale withdrew a large amount of funds, both USDT and USDC surged to 100% utilization rates These markets are also stuck now, with funds locked in. Panic is spreading, and when people are in dire straits, they often begin to resort to extreme measures to save themselves Some users choose to use locked USDT or USDC as collateral for loans, and then withdraw from other markets, even if they have to bear a loss of 10% to 25%, corresponding to approximately 90% to 75% LTV. Simply put, it means borrowing assets such as GHO, DAI, and USDe from locked USDT or USDC, and then finding a way to withdraw But as more and more liquidity flows out of AAVE, more markets will also rush to 100% utilization, and then get locked in due to low liquidity This chain reaction is rapidly spreading to almost all still active markets Fortunately, the overall volatility of the cryptocurrency market is relatively flat today, and the clearing pressure is not particularly high at the moment. But once the market changes and there are billions of dollars worth of stablecoins and other assets locked in AAVE, which cannot even be cleared, it means that more bad debts will continue to be smashed out If those trapped users, or related protocols that are also stuck inside, urgently need this money to avoid liquidation or maintain certain key functions, then they are really in big trouble now Not to mention, no one is willing to continue saving money or replenishing liquidity in these markets now. After all, no one wants to throw their ETH, BTC, USDC, USDT into it and not know how long they will be stuck As long as there is a slight increase in liquidity in the market, it will be immediately snatched up by robots. As I am writing this, I see the 250000 liquidity that has just emerged in the USDC market being drained in just a few seconds And then there's the issue of bad debts AAVE has been burdened with over $200 million in bad debts due to the rsETH incident, and this thing is now like a hot potato, no one knows who will ultimately foot the bill If you haven't taken the assets out of AAVE yet, you may have to share this account in some form. Not being able to get one's own money is itself a part of the risk The risk of infection is also very high Many protocols and applications' revenue mechanisms are originally built on top of AAVE. Now these protocols and their users are also trapped, even if they haven't done anything wrong themselves, they may be forced to swallow bad debts The crash on October 10th was caused by centralized exchanges, while this time it was a massive DeFi risk control failure AAVE should never have used rsETH as collateral to go online, at least not to scale up to several hundred million dollars, allowing hackers to borrow over 200 million dollars of ETH with fake collateral There are still rumors that rsETH can be launched by AAVE due to conflicts of interest and lobbying behavior by a certain service provider. If this is true, then the governance structure of AAVE is a major failure, and of course, this kind of thing is not new The @ KelpDAO team responsible for managing rsETH is now facing a difficult decision on who should bear the losses caused by the $200 million vulnerability. AAVE users. RsETH users on L2. Or are all affected people collectively reduced in assets to fill the gap The AAVE team is currently facing significant issues as the entire protocol is at risk The TVL of AAVE in the market is losing billions of dollars at a rapid pace, even pulling all core markets to 100% utilization Perhaps some key players in the industry will step in to replenish liquidity and help AAVE stabilize the market, avoiding further deterioration of the situation Who knows, these days they've become hacker ATM machines, no longer playing