Aave withstands a $200 million liquidation shock! The founder foresees the global interest rate cuts bringing arbitrage opportunities between TradFi and DeFi.

During the market big dump on October 10, when many Centralized Exchanges experienced glitches, decentralized finance (DeFi) protocols like Aave automatically liquidated over $200 million in collateral, maintaining solvency without interruption, which fully demonstrated the resilience of DeFi. Aave founder Stani Kulechov believes that global Central Bank interest rate cuts are imminent, which will reignite yield flows and widen the interest rate spread between TradFi and DeFi, opening the door for arbitrage opportunities and institutional participation. In the third quarter, Aave's revenue structure, which is mainly driven by net interest income, shows that its lending mechanism is robust and well-prepared for the shift in the macro environment.

Market Stress Test: Aave Successfully Averts $200 Million Liquidation Crisis

In the face of extreme market volatility, DeFi protocols successfully withstood stress tests through their built-in risk parameters and liquidation mechanisms, with Aave performing particularly well.

· The self-proving of DeFi: On October 10, when the market melted down, Aave automatically liquidated over $200 million worth of collateral. Kulechov said, “Considering the current scale of the protocol, it's quite scary. But the outcome is good. DeFi has truly proven itself.”

· Maintain protocol solvency: The liquidation mechanism is the protocol's local way to maintain solvency during market turbulence. Aave relied on preset parameters and risk assessments to smoothly navigate through this extreme volatility.

(Source: Blockworks Research)

· Robust revenue structure: In the third quarter, Aave's revenue stack was again dominated by net interest income, while the proportions of flash loan and liquidation income were relatively small. This is exactly the performance the system should exhibit under normalized interest rates, indicating that its lending mechanism is solid and increasingly “boring” (in a good way).

· Normalization of Interest Rates: As the interest rate environment stabilizes, the annual percentage yield (APY) of stablecoin supply on Ethereum stabilizes in the range of 3% to 5%, contrasting with the surge at the end of 2024.

Macroeconomic Outlook: Central Bank Rate Cuts and the Arbitrage Window between TradFi and DeFi

Aave founder Kulechov focuses on macro economic trends, predicting that global Central Bank interest rate cuts will become the next catalyst in the DeFi space, accelerating financial innovation and expanding arbitrage opportunities.

· Eager for Central Bank Interest Rate Cuts: Kulechov stated, “I am very eager for the central bank interest rates to decrease. Historically, when this occurs, financial innovation accelerates.”

· Interest arbitrage opportunities: Rate cuts may create significant arbitrage opportunities between TradFi and DeFi. When policy interest rates decline, the interest rate differential between on-chain funds and TradFi tends to widen, creating conditions for basis-driven liquidity that supports lending similar to previous easing cycles.

· Attracting traditional participants: If DeFi remains secure, more traditional participants (such as new banks and fintech companies) will join to seek returns.

· Transparent source of income: Kulechov emphasizes that the strength of DeFi lies in transparency—users can actually see the source of their income.

Strong Partnership: Aave and Maple Finance Reach Cooperation

Aave and the on-chain asset management company Maple Finance announced a strategic partnership in late October 2025, aimed at bringing institutional-grade assets into Aave's Decentralized Finance lending market.

The details of the cooperation are as follows:

• Asset Integration: According to the protocol, Maple's yield-bearing stablecoins syrupUSDT and syrupUSDC will be integrated as new assets into Aave's lending market.
  • Initial Deployment: syrupUSDT will first launch on the Plasma instance of Aave, while syrupUSDC will be introduced in the core market.
  • Future Plans: Both parties plan to gradually increase more Maple assets in the future.
• Source of Funds: These stablecoins from Maple are backed by institutional capital in its on-chain credit pool, which manages billions of dollars in funds.
• Cooperation Objectives:
  • Stable Lending Demand: By introducing institutional-grade assets, the aim is to stabilize Aave's lending demand, making its variable interest rate model more robust.
  • Improve Capital Efficiency: Enhance the capital efficiency of the Aave protocol and deepen liquidity.
  • Connecting Institutional Capital: Linking Maple's institutional capital with Aave's large liquidity pool brings more institutional-level funding to the DeFi ecosystem.

The market interprets the progress as follows:

• DeFi Evolution: This collaboration is seen as an important milestone in the DeFi space, marking a deeper integration between decentralized finance and institutional lending.
• Market Outlook: Analysts generally believe this is a positive news, as it brings new sources of capital to DeFi and may promote the growth of the Aave protocol.
• Increased Institutional Interest: This collaboration reflects the growing interest of institutional investors in decentralized finance platforms. In 202, the total locked value (TVL) of Maple Finance surged from approximately $296 million at the beginning of the year to $2.78 billion in October.
• Protocol Upgrade: This integration occurs after Aave announced plans to launch the V4 upgrade by the end of 2025, which raises market expectations for the future performance of the protocol.

Competitors and Future Roadmap: Innovations of Aave V4 and Euler

The competition and innovation in the DeFi lending market continue, with Aave preparing to launch a major upgrade, while its competitors are focusing on customized credit markets and fixed interest rate products.

· The launch of Aave V4: Aave V4 is expected to be launched this quarter, aiming to simplify the protocol architecture and expand the product surface for crypto-native and institutional users.

· Euler's differentiated competition: In contrast, Euler's CEO Michael Bentley explained that due to the differences in borrower portfolios, Euler has less liquidation volume. He mentioned that people are building customized credit markets on Euler for instant liquidity market making or providing instant redemption for RWAs (Real World Assets).

· Euler's Q4 direction: Bentley pointed out that the focus for Q4 is “more integration with fintech - as well as the launch of new products”, particularly fixed Interest products.

· Tracking Key Indicators: DeFi observers can assess whether the upcoming macro shifts will transform into arbitrage opportunities as Kulechov expects by monitoring protocol metrics such as deposits and loans, income composition, liquidation activities, and interest rate fluctuations.

Conclusion

Aave's robust performance under market selling pressure provides strong evidence for the resilience and reliability of mechanisms in DeFi. Founder Kulechov's macro expectations for global interest rate cuts suggest that TradFi capital and arbitrageurs may flow into the safe and high-yielding DeFi sector. With the upcoming release of Aave V4 and the continued innovation in RWA and fixed-rate products in the industry, the DeFi market stands at a critical turning point. Future success will depend on whether the protocol can maintain technological security and transparency, thereby capturing the next wave of liquidity driven by macroeconomic cycles.

Disclaimer: This article is for informational purposes only and does not constitute any investment advice. The cryptocurrency market is highly volatile, and investors should make decisions cautiously.