Lending Protocols See $5B Surge In Active Loans, Led By Aave

Lending protocols have experienced a significant boost in active loans, adding approximately $5 billion year to date.

Aave, the leading lending protocol by total value locked (TVL), accounts for $4.5 billion of this increase.

Unlike the previous all-time high in 2021, new entrants Spark and Morpho have now secured positions in the top three, with $1.7 billion and $1.1 billion in active loans, respectively. Aave remains the dominant player, commanding a 62% market share with $7.9 billion in active loans.

Last week, the value of borrowed WETH on Aave, with a health factor between 1 and 1.025, surged to $1.2 billion. This spike followed Aave’s introduction of Leverage Restaking Tokens (LRTs) for 14x leverage strategies. However, such high leverage can lead to increased risks of liquidation if loans are not carefully managed.

Over the weekend, the total value of these high-risk loans decreased to $725 million as users began to deleverage their positions. Reducing leverage helps mitigate the risk of cascading liquidation events, which can occur when spikes in borrow rates trigger forced liquidations.

As lending protocols continue to grow, proper management of leverage and loan health will be crucial to maintaining stability in the market.

Disclosure: This is not trading or investment advice. Always do your research before buying any Metaverse crypto coins.