MakerDAO’s actions against Aave had these repercussions on the DeFi platform

The crypto market continues to take a beating in the bear market. Due to the current market turmoil, the total value locked (TVL) of DeFi has decreased by 55% since the end of April. In fact, at press time, total TVL has dropped significantly this month. Record a 10% drop (amounting to $75 billion) in its TVL in the past 24 hours.

But it looks like one platform suffered the most of the lot.

sinking boat

Among the top five DeFi protocols with the largest TVL, Aave Protocol seems to have suffered the biggest drop in the last 24 hours. Within a month, the protocol saw a 41% correction and currently stood at a TVL of $5.64 billion and ranked second in the DeFi protocol rankings.

Source: DéfiLlama

In terms of price, AAVE saw another correction as it slipped below the $58 mark, marking a massive decline. Around June 6, the AAV the token broke above its crucial resistance level of $104 and registered a high of $111 during intraday trading. However, this was immediately followed by a price retracement which caused the token to lose 21% of the accumulated gains.

Interestingly, AAVE holders were aware of a downside when they decided to book their profits when AAVE completed a 52% rally on June 11, selling $17 million worth of AAVE. Since then, it has been a descent for the token.

Source: Santiment

This is evident here in the graph above. Trading volume remained low with no excitement around the network, and hence investor sentiment.

What did I do?

Well, the protocol itself didn’t do much to register a recovery. Additionally, MakerDAO voted to cut off lending platform Aave’s ability to generate DAI for its collateral-free lending pool. The risks of Celsius’ liquidity crisis are hanging over the entire crypto ecosystem to make matters worse.

Disabling the module would mean that Aave could no longer generate DAI at will, only allowing it to pay off existing debts. The change will be available for execution on June 17. Moreover, the proposal censored Aave at additional risk due to its multi-channel deployments.