Aave's Exit Exposes Vulnerability of DeFi Ecosystems

Aave's withdrawal from six public chains has sent shockwaves through the DeFi ecosystem. The lending protocol, which earned $142 million in revenue on Ethereum last year, announced it would close lending markets on six blockchains that generated less than $5,000 in revenue per quarter.

The affected chains are Soneium, Aptos, Zksync, Scroll, Mentis, and Harmony. Each of these chains had an average financing of $250 million and deployed cost-efficient lending protocols, but failed to spawn real demand for lending services.

Aave's withdrawal will trigger a chain reaction, as many service providers will re-evaluate their support for these public chains without an active lending market. Market makers will stop investing funds in DEXs on these chains, and stablecoin issuers will not provide native issuance support.

The collapse of credit infrastructure has been seen before, particularly on Harmony and Fantom, which suffered cross-chain bridge hacker attacks in 2022 and 2023, respectively. Even with real users and lending demand, Fantom failed to rebuild the credit market after its attack.