$120 Million of Aave Funds Trapped in Polygon: Is This Bearish News?

Over $120 million of user assets are currently stuck on the Aave v2 decentralized finance (DeFi) protocol for lending and borrowing on Polygon, an Ethereum side-chain. This is due to a bug affecting withdrawals following a recent update, which has been traced to the implementation of “proposal 224” meant to make parameter changes for the benefit of the protocol in light of shifts in the crypto market. While the adjustment received majority support and was implemented, several issues affecting the interest rate strategy contracts applied to the wrapped versions of Bitcoin, Ethereum, MATIC—the native currency of Polygon—and USDT—the world’s most liquid stablecoin, were noted after the execution. The development team has said that the root cause of the bug was the incompatibility issue between the ReserveInterestRateStrategy contract and the underlying Polygon network.

The ReserveInterestRateStrategy contract is a core contract in Aave that helps calculate and apply interest rates to borrowed loans. However, since the contract was designed to work specifically on Ethereum, it could not work on Polygon, causing it to fail. As a result, users can’t withdraw assets, although Aave emphasizes that all funds are safe.

The Aave team plans to fix the bug, pending the result of an ongoing vote, but affected users will only be able to withdraw assets from Aave v2 later this week. Despite the flaw, prices of AAVE, Aave’s token, remain stable, but it is yet to be seen how prices will react in the coming days. The token is down 25% from April 2023 and remains in a bearish formation.

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J-S Tremblay
About the author - J-S Tremblay

I've been involved in the cryptocurrency world since 2016 and trading since 2019. I started Moon and Lambo in 2021. I'm passionate about crypto and love to share my knowledge. I hate bankers and I hope that cryptocurrency will change the financial world for the better. View full profile...

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