Aave, a popular lending protocol in the decentralized finance (DeFi) space, has taken action to mitigate the impact of recent price volatility in the stablecoin market. On March 11, the price of USD Coin (USDC), a commonly used stablecoin, depegged, leading to concerns over the stability of other stablecoins. In response, Aave has temporarily frozen trading of stablecoins and set the loan-to-value (LTV) ratio to zero.
The decision to freeze trading was based on an analysis by Gauntlet Network, a DeFi risk management firm, which recommended a temporary pause of all v2 and v3 markets. Aave’s governance forum noted that setting the LTV ratio to zero would “discount the borrowing power of the asset” without affecting the health factor (HF) of any user position. The HF is a measure of the risk associated with a user’s position on the Aave platform.
The LTV ratio is an important metric for determining the amount of credit that can be…
