Aave 'Midnight Siphoning' Costs Borrowers $6 Million Annually

A mysterious fund is withdrawing $190 million in liquidity from Aave's USDC pool every night at midnight UTC, only to return it half an hour later. This daily maneuver costs borrowers an additional $6 million in interest annually.

DeepFlow's on-chain tracking reveals that this is likely a mandatory process used by the fund to prove to its investors that it truly holds these funds. DeFi's transparency exposes the invisible tax imposed on on-chain users by traditional finance compliance procedures.

The utilization rate of Aave's USDC market has surged daily at midnight UTC since May, with total borrowing averaging $1.89 billion since June 27. The surge in utilization benefits depositors but harms borrowers, causing variable borrowing rates to rise and temporarily higher repayment amounts per block.