Whale Withdrawals from Aave Ignite Liquidity Crisis

In the past week, whales have withdrawn substantial amounts of Ethereum from the lending protocol Aave, leading to an increase in funding rates and a sharp closure of certain positions.

On some days, the annual percentage yield (APY) for wETH positions exceeded 10%. While liquidity providers benefited from this situation, users borrowing assets faced adverse effects.

Traders engaged in looping—a strategy aimed at profiting from Ethereum staking by repeatedly depositing and borrowing—suddenly began to incur losses. Many of them rushed to close their positions, resulting in liquidity providers for liquid staking having to forgo locking up their coins.

This led to a massive queue for withdrawals. As of July 23, there were 633,896 ETH awaiting withdrawal, a record high in the history of the protocol.

As a result, a temporary liquidity shortage emerged.

Currently, funding rates on Aave have returned to normal levels; however, the incident highlighted the influence large players can exert.

In a conversation with DLNews, Aave contributor Marc Zeller identified TRON founder Justin Sun as the primary whale withdrawing funds from the protocol. According to his observations, the entrepreneur regularly transfers and withdraws large sums.

According to the Arkham dashboard, wallets identified as belonging to Sun have withdrawn approximately $650 million in Ethereum from Aave in recent days. His addresses still hold stETH valued at $390 million.

«[Sun] is just unpredictable. He trades billions the same way I go grocery shopping,» Zeller remarked in a discussion in a Telegram chat.

Addresses associated with the HTX exchange also moved coins worth around $450 million out of the protocol.

Additionally, the London-based investment firm Abraxas Capital Management withdrew more than $100 million in cryptocurrency over the past week.

It’s worth noting that amidst a market upswing, there has been a spike in whale activity within the Bitcoin and Ethereum networks, with major investors moving billions of dollars in coins.