Oranges 🦇🔊

Aave protocol will be fine. The hacker supplied 60M USDT and borrowed 19,762 wETH (~44.9M$) in 3 minutes, before Tether froze their address and before the Aave Guardian froze the Aave V3 Core reserves (46 min later). But USDT is real money backed by dollars, and the position is criminal but overcollateralized in the eyes of the protocol: health factor 1.04, 59.9M$ of collateral against 44.9M$ of debt. Sure, we now have a large borrower with little incentive to repay their loan, but liquidations work as usual: if ETH goes above ~2,365$ (+4%), the position gets liquidated like any other. The Aave V3 Core wETH reserve is 2.16M wETH, so the hacker's debt is "only" 0.9% of it as I'm writing this. I don't think Aave needs to take specific action against the hacker. 345k wETH is available right now (81.6% utilization), so wETH liquidity is sufficient if wETH depositors want to withdraw There's no reason or need for a bank run. The situation is much less dire than during the Kelp hack (zero-value collateral), and we should not expect a re-run of "DeFi United". On paper, a governance proposal could force-liquidate the hacker by upgrading the Pool to target this single position (lowering the USDT liquidation threshold would hit every USDT supplier), but I see no real upside in doing that as normal liquidation can eat this up without sweat. The reserves are frozen now, but no need to panic; you can repay and withdraw. This isn't the first time this has happened, and it won't be the last, and Aave is still there. Just another day in crypto.