After Aave got bad debt --> normal users rushed to withdraw ETH/stables --> pools slammed to 100% utilization = no one can get out. Stuck depositors realized they couldn’t withdraw but could still borrow --> they maxed their credit, yanking out as much stables as possible via loans. Lenders turned into leveraged borrowers on a pool that already had a hole --> risk spirals higher. Whales/normies/treasuries pulled almost $8B from Aave and derisked on other similar protocols (Morpho, Sky, Fluid, Kamino, etc.) --> bridge/LST collateral is now “radioactive” in the eyes of serious money. Heck, many people won't even deposit USDC/USDT alone. Simply because it's not worth it for 3% APY, since you might lose 100% of your capital. DeFi works as intended, but at what cost? Will be interesting to see what comes out of this.
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