Stani Kulechov, the founder of DeFi protocol Aave, said the protocol earned $6 million from liquidation fees during today’s crypto market plunge and subsequent selloff.
The Bank of Japan decided to raise interest rates last week, and the US jobs report on Friday was poor. These two factors impacted DeFi and the broader crypto market. Traders liquidated positions worth more than $1 billion across crypto derivatives markets.
Aave withstood market stress
Kulechov posted on X that the protocol had withstood market stress across multiple L1 and L2 blockchains on 14 active markets and secured assets worth $21 billion. Its overnight earnings from decentralized liquidations amounted to $6 million.
Aave Protocol withstood market stress across 14 active markets on various L1s and L2s, securing $21B worth of value.
Aave Treasury was rewarded with $6M in revenue overnight from decentralized liquidations for keeping the markets safe.
This is why building DeFi is FTW.
— Stani (@StaniKulechov) August 5, 2024
The crypto market decline led to several liquidations on Aave, including a $7.4 million WETH position. This transaction alone earned the protocol revenue of $802,000.
Types of fees in the DeFi ecosystem
Decentralized liquidation platforms, typically found in the DeFi ecosystem, have various fee structures. The main ones, in this case, are protocol fees. Many DeFi protocols charge a fee for liquidations.
This can be a fixed percentage of the liquidation amount or a dynamic fee based on market conditions or protocol governance decisions.
Aave’s 5% liquidation fee made all the difference
Aave charges a 5% liquidation fee on the value of the collateral liquidated. When a trader liquidates a Vault (formerly CDP), MakerDAO charges a 13% penalty fee on the collateral value. Compound typically has an 8% liquidation incentive, which the protocol splits with the liquidator.
Since most DeFi protocols operate on blockchain networks like Ethereum, gas fees are a significant part of the costs. The network receives these fees for executing transactions and smart contracts. The amount can vary greatly depending on network congestion and the complexity of the transaction.
Protocols may offer incentives, which are also a fee, to encourage users to perform liquidations. The incentive is usually a percentage of the liquidated collateral the liquidator receives. This incentive is included in the actual cost to the borrower.
Aave price prediction
At press time, the price of AAVE is $89.58. According to CMC data, crypto has lost 15.63% of its value in the last 24 hours. All technical indicators, including oscillators and moving averages, point to a strong sell. The next Fibonacci support level to watch is 81.16. The 10-day momentum value is −7.73, indicating a longer-term bearish tendency despite a recent surge.
