• USDC losing its peg pulled down the markets, but many saw it as an opportunity to pay loans at a discount
• Debtors saved around $100 million off their loans during the market rout

As the crypto-market suffered over the weekend, there was a silver lining for some. When stablecoins lost their dollar peg, a group of debtors were able to gain profits. In fact, a recent report from crypto-data provider Kaiko shed light on how borrowers were able to snatch a discount on their loan payments.

Leading DeFi protocols Aave and Compound saw debtors rushing to repay their loans on 11 March when stablecoins were undergoing a downgrade. 

Debtors find solace as USDC fell

The collapse of Silicon Valley Bank triggered a downward spiral for many stablecoins. It led to USDC slumping to as low as $0.87 on 11 March, with other coins soon following suit. USDC has since regained its peg, however, and was trading at $0.99 at press time.

On that day, Aave and Compound saw loan repayments worth around $2 billion, according to Kaiko. Here, it is to be noted that a majority of these payments were made using USDC while some were made with DAI.

Debtors were able to repay the loans at a reduction because of the coins’ de-pegging. This is an interesting finding because if we look at the data, the days preceding and following 11 March did not see much activity at all.

Analytics firm Flipside Crypto further revealed that borrowers saved around $100 million. This included USDC debtors saving $84.1 million and debtors of DAI saving $20.8 million.

Aave and Compound also saw massive withdrawals after coins lost their peg, according to Flipside Crypto. In fact, Compound users withdrew around $400 million while $13.1B was withdrawn from Aave, $11.9B of which was ETH.

These repayments and withdrawals indicate that DeFi protocols saw tremendous activity as stablecoins fell. The massive price dislocations created arbitrage opportunities across the ecosystem, highlighting the importance of USDC once again.

• Aave has frozen stablecoin trading on the V3 Avalanche deployment.
• AAVE is due for a price decline as selling pressure exceeds buying pressure. 

In response to the recent price volatility on stablecoins, particularly after the USD Coin (USDC) depegged on 11 March, lending protocol Aave, has suspended trading of the USDC, USDT, DAI, FRAX, and MAI on its V3 deployment on the Avalanche network.

In light of the current volatility surrounding stablecoins, Aave DAO has frozen USDC, USDT, DAI, FRAX, and MAI on Aave v3 Avalanche. This measure prevents new positions from adding risk to the protocol. https://t.co/ndH0qtIdFV

— Aave (@AaveAave) March 11, 2023

The trading halt was implemented following an evaluation by the risk management firm Gauntlet Network, which analyzed various outcomes for USDC following the deppeging and suggested that all  Aave V2 and V3 markets be temporarily paused. 

How much are 1,10,100 AAVEs worth today?

According to Gauntlet, when the price of USDC, one of the stablecoins used on Aave, depegged from the U.S. dollar on 11 March, it created a divergence in the price of stablecoins.

This means that they no longer moved together in price as they were expected to do. As a result, the risk of insolvencies increased on Aave, which could lead to losses for the platform and its users.

Further, Gauntlet noted that at current prices of the stablecoins used on Aave, insolvencies were approximately 550,000. However, the risk management firm stated that this could change depending on price trajectory and further depegs.

As a result, it recommended temporarily pausing all Aave V2 and V3 markets to prevent further losses to users.

Herein lies the consequences

Following the suspension of stablecoin trading on Aave V3 on the Avalanche network, the chain has suffered a drop in the value of assets locked (TVL). Per data from DefiLlama, Avalanche has suffered a 10% drop in TVL in the last 24 hours. 

As for AAVE, Aave’s native token, while its price rallied by 1% in the last 24 hours, it registered a 25% decline in trading volume within the same period.

Typically, an increase in an asset’s price coupled with a decline in trading volume within the same window period indicates a lack of conviction in the asset’s price growth.

Such divergence is often followed by a price reversal (decline) or consolidation till conviction improves.

However, AAVE’s performance on a daily chart suggested that an improvement in investors’ conviction might take a while, with the alt significantly oversold at press time.

AAVE’s key momentum indicators, such as its Relative Strength Index (RSI) and the Money Flow Index (MFI), rested at 32.37 and 20.65, respectively. 

Read Aave’s [AAVE] Price Prediction 2023-2024

Further, the Aroon Up Line (orange) at 7.14% showed that AAVE’s most recent high was reached long ago. Conversely, the Aroon Down Line (blue) at 92.86% suggested that the price downtrend was strong, and the most recent low was reached relatively recently.

Lastly, the dynamic line (green) of AAVE’s Chaikin Money Flow (CMF) was below the centerline at -0.11. This meant that selling pressure exceeded buying pressure, and the price was due for a further decline.

Disclaimer: The information presented does not constitute financial, investment, trading, or other types of advice and is solely the writer’s opinion

• AAVE oscillated in a range in the past few weeks. 
• A recovery could offer significant gains if it overcomes a key hurdle.

AAVE traded in the $73 – $95 range in the past few days. Bitcoin [BTC] sharp decline on Thursday (2 March) sent the AAVE to retest its range support zone.

But it seems investors aren’t exiting the market, which could potentially boost a bullish recovery if demand increases for AAVE at its current discounted prices. 

Read AAVE’s [AAVE] Price Prediction 2023-24

AAVE dropped to the key support zone

The $95 level has become a key resistance, preventing bulls from inflicting further gains after the impressive rally in January. So far, the $90 – $95.5 zone has become a key sell pressure area. 

Similarly, the $73 – $77.8 is a key support zone (green) that has seen significant demand in the past retests. If the trend repeats, the retest witnessed at press time could drive demand for AAVE at the current price level. Such a demand could push AAVE toward the sell pressure zone (red).

Bulls could be boosted if the price breaks above the price of control/value area above $80 (red line) and retest it. The Fixed Range Volume Profile (VRVP) shows the traded volume over a price range and highlights the price with the highest volume (red line).

A break and pull-back retest at $80.8 could boost the uptrend to target the supply zone – a potential 11% hike. 

On the contrary, bears could undermine bulls’ efforts if they sink AAVE below the support zone. Such a downswing could see AAVE drops further toward $66. 

The RSI fell gently over the past few days and was below 50 at press time, reinforcing that bears have leverage in the current structure. Similarly, the Average Directional Movement Index (ADX) moved southwards, showing the rally at the start of the year weakened and could experience extended consolidation or retracement. 

The Funding Rate rebounded, but …

AAVE’s Funding Rate dipped and improved later, as shown by Santiment, indicating that demand improved – a bullish signal. Similarly, supply out of exchanges spiked, confirming short-term accumulation, which could tip bulls to enter the market in the long run. 

Is your portfolio green? Check out the AAVE Profit Calculator

However, selling pressure came from addresses holding 1k to 10k AAVEs and 10k to 100k AAVEs, which controlled 6% and 18% of the market supply, respectively.

But the dominant whale category (48% of supply) was inactive at press time. Therefore, cautious investors could wait for a pullback retest on the support zone before making moves.