- This topic has 1 reply, 1 voice, and was last updated 1 month, 2 weeks ago by Ivo_ChainNET.
- Saturday, August 6th, 2022 at 10:24 #350209ConsciousnessItselfParticipant
Let’s say I deposited USDT into Aave, and then for some reason there is a mass exodus where everyone is withdrawing their USDT deposits at once. Given that currently half the pool (300M of 600M) is being borrowed, that means not everyone will be able to withdraw the USDT that they lent.
So, if the pool is depleted, how do the people who are late to the party get back the USDT that they deposited? Are they guaranteed to be able to get it back or is this one of the risks of lending protocols?
Thank you!Saturday, August 6th, 2022 at 10:24 #350210Ivo_ChainNET
tl’dr: no but there are several systems which make sure that all suppliers will be able to withdraw eventually
If all USDT suppliers decide to withdraw right now, then only the half will be able to. The rest of USDT is still being borrowed so it can’t be withdrawn.
However, this will push the system unto very high USDT utilization, which will result in USDT borrowers paying extremely high interest to USDT suppliers. At 90% utilization that’s around 4% a year but beyond that is rises sharply. At 99% it’s 56% a year.
These interest payments & borrow positions are overcollateralized by other assets approved by the AAVE risk parameters.
If somehow the collateral of borrowers is not enough to keep their positions healthy, they will get liquidated, borrows will get repaid and USDT utilization rates will drop.
Finally in the case that a sharp drop in price results in bad debt (liquidation bots can’t act fact enough) AAVE stakers will be forced to repay the bad debt for up to 30% of their staked amount.
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