Aave discontinues stablecoin trading on its V3 deployment- Here’s why

Aave discontinues stablecoin trading on its V3 deployment- Here’s why

March 13, 2023

By Abiodun Oladokun

How much are 1,10,100 AAVEs worth today?

Aave has frozen stablecoin trading on the V3 Avalanche deployment.

AAVE is due for a price decline as selling pressure exceeds buying pressure.

In response to the recent price volatility on stablecoins, particularly after the USD Coin (USDC) depegged on 11 March, lending protocol Aave, has suspended trading of the USDC, USDT, DAI, FRAX, and MAI on its V3 deployment on the Avalanche network.

The trading halt was implemented following an evaluation by the risk management firm Gauntlet Network, which analyzed various outcomes for USDC following the deppeging and suggested that all Aave V2 and V3 markets be temporarily paused.

According to Gauntlet, when the price of USDC, one of the stablecoins used on Aave, depegged from the U.S. dollar on 11 March, it created a divergence in the price of stablecoins.

This means that they no longer moved together in price as they were expected to do. As a result, the risk of insolvencies increased on Aave, which could lead to losses for the platform and its users.

Further, Gauntlet noted that at current prices of the stablecoins used on Aave, insolvencies were approximately 550,000. However, the risk management firm stated that this could change depending on price trajectory and further depegs.