A massive withdrawal of approximately $1.7 billion worth of Ethereum (ETH) from the Aave lending protocol, attributed to a whale likely identified as Justin Sun, has caused significant disruption within the decentralized finance (DeFi) ecosystem.
The withdrawal tightened available ETH liquidity sharply on Aave, triggering a dramatic surge in borrowing rates across the platform. This spike forced leveraged users holding staked Ethereum (stETH) positions to unwind them, leading to increased selling pressure on stETH.
The selling contributed to a destabilizing 0.3% depegging of stETH from the price of ETH. This temporary depeg was exacerbated by Lido Finance’s 18-day staking withdrawal queue, which limited immediate redemption options and incentivized users to sell stETH on secondary markets at a discount.
This event starkly revealed underlying vulnerabilities within DeFi lending markets and leveraged staking strategies, particularly the risks associated with liquidity concentration and the responsiveness of oracle pricing systems under significant market stress. While observed ETH and stETH prices subsequently rallied significantly, the depeg episode highlighted systemic fragilities.