Aave, the famous lending protocol, has managed to freeze all forms of stablecoin trading- as well as set up a loan-to-value ratio to absolute zero- which was a response to recent volatility in price on stablecoins after the USDC managed to get de-pegged on 11th March.
According to the governance forum of this lending platform, the trading freeze did follow a major analysis from Gauntlet Network, the decentralized finance risk management company- which went on to recommend that all of the v2 and the v3 markets should be paused temporarily. One of the participants in this discussion went on to note that setting the LTV to 0 would definitely help in every situation- but on the v3 Pool of Avalanche, the Aave Guardian could act immediately. Setting the LTV to 0 would also discount the borrowing power of the asset without affecting the HF at any user position.
Aave Has Weathered The USDC Storm
LTV is quite an important factor that readily determines how much credit one would be able to secure if one were to use cryptocurrency as collateral. This value is usually expressed as a percentage, with the ratio being calculated by dividing the amount of credit that was borrowed by the value of this collateral. The risk analysis of Gauntlet done on Aave did examine the insolvency number that could periodically occur under quite a few scenarios- if one were to also consider the stabilizing prices of USDC.
Although Aave managed to settle its prices, SVB- on the other hand- was shut down completely by the California Department of Financial Protection and Innovation on 11 March after a triggering bank run by the latest financial reports. The reports showcased that they had reportedly sold a huge bunch of securities that had a worth of $21 billion.