- Aave has frozen stablecoin trading on the V3 Avalanche implementation.
- AAVE is due for a price drop as selling pressure outweighs buying pressure.
In response to the recent price volatility on stablecoins, particularly after the USD Coin (USDC) de-pegged on March 11, lending protocol Aave has expanded trading of the USDC, USDT, DAI, FRAX, and MAI on its V3 implementation on the Avalanche platform. network suspended.
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 features from adding risk to the protocol. https://t.co/ndH0qtIdFV
— Aave (@AaveAave) March 11, 2023
The trading freeze was introduced following a Evaluation by the risk management firm Gauntlet Network, which analyzed various outcomes for USDC post-debt and proposed to temporarily pause all Aave V2 and V3 markets.
How much are 1,10,100 AAVEs worth today?
According to Gauntlet, when the price of USDC, one of the stablecoins used on Aave, broke away from the US dollar on March 11, a divergence in the price of stablecoins emerged.
This means that they no longer matched in price as expected. As a result, the risk of insolvency on Aave increased, which could lead to losses for the platform and its users.
Furthermore, Gauntlet noted that at the current prices of the stablecoins used on Aave, the number of insolvencies was around 550,000. However, the risk management firm stated that this could change depending on the 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 lie the consequences
Following the suspension of stablecoin trading on Aave V3 on the Avalanche network, the chain has experienced a decline in the value of locked assets (TVL). Per data from DefillamaAvalanche has suffered a 10% drop in TVL in the last 24 hours.
As for AAVE, Aave’s native token, while the price was up 1% in the past 24 hours, it registered a 25% drop in trading volume over the same period.
An increase in the price of an asset combined with a decrease in trading volume within the same period usually indicates a lack of conviction in the asset’s price growth.
Such a divergence is often followed by a price reversal (decline) or consolidation until the conviction improves.
However, AAVE’s performance on a daily chart suggested that an improvement in investor confidence could take some time, as the alt was significantly oversold at the time of writing.
AAVE’s main momentum indicators, such as the Relative Strength Index (RSI) and the Money Flow Index (MFI), rested at 32.37 and 20.65, respectively.
Read Aave’s [AAVE] Price forecast 2023-2024
Furthermore, the Aroon Up Line (orange) at 7.14% showed that the most recent high of AAVE was reached long ago. Conversely, the Aroon Down Line (blue) at 92.86% suggested that the price decline was strong and that the most recent low was reached relatively recently.
Finally, the dynamic line (green) of AAVE’s Chaikin Money Flow (CMF) was below the midline at -0.11. This meant that the selling pressure was greater than the buying pressure and the price was due for a further fall.
Source: AAVE/USDT on TradingView