Ethereum-based cryptocurrency lending protocol Aave is witnessing a fast improve in Coinbase Wrapped Bitcoin (cbBTC) flows to its platform because of a brand new incentive program it’s actively concerned in.
Whereas this can be a reflection of the rising liquidity and growing adoption of the packaged Bitcoin product on Aave, market evaluation platform IntoTheBlock says this poses a danger to customers. In accordance with a tweet from IntoTheBlock, customers might briefly be unable to repay their loans on Aave if the state of affairs goes sideways.
cbBTC raises $200 million weekly on Aave
Earlier this 12 months, Aave launched Benefit, a system designed to reward customers who take part in actions on the platform. Some actions that might earn them incentives from this system embody holding stkGHO, the staking model of Aave’s algorithmic dollar-pegged stablecoin, GHO, and borrowing USD Coin (USDC) on Base, the Ethereum-based layer 2 protocol of the crypto change Coinbase.
In mid-August, Aave’s Decentralized Autonomous Group (DAO) carried out the Benefit incentive program on Base, aiming to reward customers who contribute to the expansion of the Aave ecosystem on the L2.
As Coinbase ready to launch cbBTC in mid-September, Aave submitted one other proposal to onboard the wrapped token utilizing its protocol.
A few month after cbBTC’s launch, an Aave DAO service supplier revealed that the protocol held roughly 56% of all cbBTC in circulation. The tweet additionally introduced that Aave could be launching a brand new Benefit program for cbBTC, and that customers would be capable of earn rewards by utilizing the wrapped token as collateral to borrow USDC, migrate and switch Tether (USDT) debt to USDC steps from BitGo’s Wrapped Bitcoin (WBTC) to cbBTC.
The Catch
For the reason that Aave DAO launched the cbBTC Benefit program on October 24, the quantity of wrapped tokens on the protocol has elevated by 2,700 BTC value roughly $200 million, bringing the full cbBTC on the community to 7,500 BTC out of 11,885 tokens contained in be in circulation. This progress has additionally catapulted cbBTC to the fourth largest USDC lending asset, making the token symbolize 12% of all collateral.
IntoTheBlock defined that this growth opened up a method of “borrow cbBTC -> borrow USDC -> borrow USDC”, which at one level elevated the share of recursively deposited USDC debt by 2% and even 7%.
This progress, whereas considerably notable, places customers in danger, because the sudden departure of a USDC provide whale from the market may go away customers unable to settle their transactions in the event that they should pay again the loans.