Aave discontinues stablecoin trading on its V3 deployment- Here’s why
- Aave has frozen stablecoin trading on the V3 Avalanche deployment.
- AAVE is due for a price decline as selling pressure exceeds buying pressure.
In response to the recent price volatility on stablecoins, particularly after the USD Coin (USDC) depegged on 11 March, lending protocol Aave, has suspended trading of the USDC, USDT, DAI, FRAX, and MAI on its V3 deployment on the Avalanche network.
In light of the current volatility surrounding stablecoins, Aave DAO has frozen USDC, USDT, DAI, FRAX, and MAI on Aave v3 Avalanche. This measure prevents new positions from adding risk to the protocol. https://t.co/ndH0qtIdFV
— Aave (@AaveAave) March 11, 2023
The trading halt was implemented following an evaluation by the risk management firm Gauntlet Network, which analyzed various outcomes for USDC following the deppeging and suggested that all Aave V2 and V3 markets be temporarily paused.
How much are 1,10,100 AAVEs worth today?
According to Gauntlet, when the price of USDC, one of the stablecoins used on Aave, depegged from the U.S. dollar on 11 March, it created a divergence in the price of stablecoins.
This means that they no longer moved together in price as they were expected to do. As a result, the risk of insolvencies increased on Aave, which could lead to losses for the platform and its users.
Further, Gauntlet noted that at current prices of the stablecoins used on Aave, insolvencies were approximately 550,000. However, the risk management firm stated that this could change depending on price trajectory and further depegs.
As a result, it recommended temporarily pausing all Aave V2 and V3 markets to prevent further losses to users.
Herein lies the consequences
Following the suspension of stablecoin trading on Aave V3 on the Avalanche network, the chain has suffered a drop in the value of assets locked (TVL). Per data from DefiLlama, Avalanche has suffered a 10% drop in TVL in the last 24 hours.
As for AAVE, Aave’s native token, while its price rallied by 1% in the last 24 hours, it registered a 25% decline in trading volume within the same period.
Typically, an increase in an asset’s price coupled with a decline in trading volume within the same window period indicates a lack of conviction in the asset’s price growth.
Such divergence is often followed by a price reversal (decline) or consolidation till conviction improves.
However, AAVE’s performance on a daily chart suggested that an improvement in investors’ conviction might take a while, with the alt significantly oversold at press time.
AAVE’s key momentum indicators, such as its Relative Strength Index (RSI) and the Money Flow Index (MFI), rested at 32.37 and 20.65, respectively.
Read Aave’s [AAVE] Price Prediction 2023-2024
Further, the Aroon Up Line (orange) at 7.14% showed that AAVE’s most recent high was reached long ago. Conversely, the Aroon Down Line (blue) at 92.86% suggested that the price downtrend was strong, and the most recent low was reached relatively recently.
Lastly, the dynamic line (green) of AAVE’s Chaikin Money Flow (CMF) was below the centerline at -0.11. This meant that selling pressure exceeded buying pressure, and the price was due for a further decline.