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Chaos Labs: Aave's $4.7 Billion Exposure to Ethena Could Trigger Liquidity Crunch

Summary: In a post on the Aave governance forum, Chaos Labs, the risk advisory firm for Aave, warned that the increasing amount of USDe deposited in the Aave protocol could threaten Aave's risk resilience and trigger a liquidity crunch. USDe holders are depositing large amounts of the token into Aave, while at the same time, its ...

In a post on the Aave governance forum, Chaos Labs, the risk advisory firm for Aave, warned that the increasing amount of USDe deposited in the Aave protocol could threaten Aave's risk resilience and trigger a liquidity crunch. USDe holders are depositing large amounts of the token into Aave, while at the same time, its issuer Ethena is lending out stablecoins backed by this asset, posing significant risks. Ethena must avoid over-reserving stablecoins in Aave to self-limit this risk exposure, which will help maintain the integrity of the redemption mechanism and market stability.

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Link: Chaos Labs: Aave's $4.7 Billion Exposure to Ethena Could Trigger Liquidity Crunch [Copy]

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