$200M in liquidation is processed using Lending Protocol Aave without increasing the burden of bad debt.

Protocol for decentralised lending According to statistics from Chaos Labs, Aave handled millions in liquidations on Monday without accumulating any new bad debt, demonstrating its resilience in the face of market turmoil.

The price of bitcoin, BTCUSD, dropped from $100,000 to around $91,000 early Monday as global markets were rocked by fears of a renewed trade war between the United States and its key trading partners, China, Canada, and Mexico. Later in the day, as President Donald Trump halted tariffs on Mexico for 30 days, the decline turned around.

Due to margin shortages brought on by the strong two-way price action, positions on both centralised and decentralised trading channels had to be forced to close. According to the data, Aave executed $210 million in liquidations in a single day, the most since the Aug. 5 crisis. More significantly, the procedure refrained from accepting additional bad loans.

When debtors default on loans and the collateral offered is not enough to cover the remaining balances, the system accumulates bad debt. In times of market volatility, such as Monday's, when steep price drops and weak demand make it difficult to effectively liquidate collateral, the risk is increased.

"The Ethereum Main instance handled the majority of the protocol's liquidations, which were carried out effectively throughout. According to Chaos Labs on X, "Aave's strong risk management procedures made sure that the collateralised positions were settled as planned, reducing protocol losses."

Aave effectively aced the market's stress test, proving the effectiveness of its liquidation and risk-control procedures. Because of the loss in the value of the loan assets, its existing bad debt even decreased by 2.7%.

The pseudonymous The performance of AAVE was praised by DeFi observer Leo as proof of the solid basis of decentralised finance, which consists of "rigorous collateral selection and management through governance, efficient protocol design for liquidations, thick liquidity pools in the ecosystem."

According to Leo, the DeFi industry has a bright future because to upcoming upgrades like Aave v3.3, v4, and the Umbrella patches.

Umbrella, an automated debt-management system, can now handle risk and reduce protocol liabilities according to version 3.3, which was introduced in December and adds a feature to record and clear uncollateralized bad debts from liquidations. The version also aids in preventing the accumulation of so-called dust debt, which is made up of small sums of debt that are hard to pay off or liquidate because of their insignificant worth.

By including relevant keywords and linking to related articles, the rewritten content aims to provide comprehensive information while enhancing search engine optimization for CryptoTelegraphs.

Join Telegram Channel For Daily New update: https://t.me/cryptotelegraphs_updates