By Alicia Maher
According to data obtained from Aave, there has been a withdrawal of more than $4 billion from the Aaves liquid fund pool. Reports reveal the exact amount to be $4.2 billion and that it was withdrawn by Justin Sun, the CEO and Founder of Tron. The withdrawal of such a huge sum from the liquid fund pool has created a buzz around Aave’s safety. This is amidst ongoing online arguments regarding the vulnerability of Aave and Yearn protocols. CREAM, a DeFi protocol, experienced a similar event previously, leading to community members calling for more governing protocols to prevent a repetition of such.
On Monday, October 29, 2021, Andre Cronje, the founder of Yearn, tweeted about Aave and how he believes the protocol is vulnerable to a similar attack as CREAM. CREAM was targeted by a flash loan hacker, who stole assets worth $130 million from the pool. The Aave community reacted by criticizing the security of CREAM. Cronje, on the other hand, believes that Aave is no better than Yearn or CREAM in terms of security, as evidenced by Sun’s multibillion-dollar withdrawal from the liquidity pool. Cronje believes that Aave, like the other DeFi projects, is vulnerable and should not criticize others.
Aave Has Responded to The Situation
In response to the situation, Aave suspended lending, borrowing, and swaps on some assets. It also froze deposits to reduce withdrawals. That decision was reached by the community members who sought immediate actions to prevent a collapse of the protocol. Over 600,000 Aave members voted in favor of the proposal called the Aave Improvement proposal (AIP). Aave is also taking steps to communicate with the Aave community to keep them updated on the efforts to improve the pool and resume normal activities.
According to its website, Aave has a market capitalization of approximately $13.74 billion. Borrowing on its DAI asset is nearly $2 billion, making it one of the industry’s largest lending platforms. A drop in liquidity may have a negative impact on Aave users’ confidence, but for the time being, the platform is holding strong and functioning properly.
Rising Flash Loan Exploitation
The rise in flash loan attacks on DeFi projects is causing concern among government regulators and the DeFi community. Although there are only a few known cases of flash loan attacks, the sensitivity of the attack and its potential implications on the financial stability of the community raises hackles. For example, further reduction in Aave’s liquidity pool may lead to a closure of lending activities.
Flash loan attacks extend beyond Defi’s lending procedures. An NFT platform was hit with a flash loan attack recently. The attacker purchased CryptoPunk 9998 for $532 million using funds loaned from the platform. The CryptoPunk 9998 was then sent to the attacker’s address on the Ethereum blockchain with an increased price. This attacker then repaid the loan and kept a huge profit. This loophole is a potential money-laundering channel that will be exploited if further actions are not taken to update the security protocols.