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DeFi protocols showed resilience during this week’s market crash, with Aave seeing its largest liquidations ever, hitting $300 million on the Ethereum mainnet. According to IntoTheBlock, most of the liquidations occurred via stablecoin loans against wstETH, the backed liquid staking token offered by Lido.

Despite ETH dropping 25% in a week, successful liquidations were performed, rebalancing the protocol and contributing $6 million in profits to the Aave DAO.

It is striking that the handling of hundreds of millions of liquidations took place without a central point of failure. Everything was done automatically by means of smart contracts.

Liquid resttaking tokens (LRTs) and yield-bearing stablecoins experienced brief deviations from their pegs. EtherFi’s eETH, the largest LRT by market cap, decoupled by up to 2% during Monday’s crash but recovered within six hours. Non-fungible LRTs faced steeper decoups but also recovered most of their discounts.

Ethena’s USDe retained its peg to the dollar, with its supply shrinking by $100 million due to redemptions. The stablecoin was down no more than 0.5% despite market volatility.

Overall, both new and established decentralized finance (DeFi) protocols have successfully weathered the macroeconomic storm, demonstrating that the sector can withstand tough conditions without external interference.

Additionally, the total value locked (TVL) in DeFi applications shrank to 10% after the August 4 crash, but managed to regain all the value lost during the correction, amounting to over $128 billion. In 2024, the TVL of DeFi applications increased by 41%, according to data from DefiLlama.

The crypto market downturn was part of a broader global deleveraging event, triggered by the unwinding of the yen carry trade following the Bank of Japan’s rate hike to 0.25%. This led to a spike in the yen and widespread asset selling, pushing the correlation between crypto and stocks to a six-month high.

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