Ayham (AJ)

Founding Contributor @silofinance
TG: Ayham.eth

[Silo Labs | V3 Live @SiloFinance]

1/
During the rsETH situation, one factor quietly prevented a bigger mess:
Borrow rates — the speed at which debt grows.
Not risk isolation. Not liquidations.

[Ayham (AJ) @ayham_eth]

@MrBreadSmith @tztokchad Silo was never hacked. An immutable Oracle hardcoded a Resolv asset was taken advantage of.

You need to make a distinction between smart contract hack and an economic exploit enabled by collapsed asset.

[Ayham (AJ) @ayham_eth]

@euler_mab The people cheering realize how aggressively Aave has pushed networks to shut out competitors from incentives. That kind of pressure has enforced exclusivity and prevented lenders from diversifying risk.
DeFi has perished long time ago!

[Ayham (AJ) @ayham_eth]

@euler_mab @mtndrew The shared lending pool model is dead. That includes Aave and its copycats Spark etc.
Isolated markets will one, I agree, but the curator model on top of isolated markets obfuscates risk the same way Aave’s Umbrellas has.

[Ayham (AJ) @ayham_eth]

@jerallaire @gordonliao The proposal has merit but it will only make things much worse. In fact we can argue that rates should be lowered until a remedy is found.

[Ayham (AJ) @ayham_eth]

@delucinator It is called Fi now

[Ayham (AJ) @ayham_eth]

@Dogetoshi Yes. They basically control the address and can move its funds however they want.

[Ayham (AJ) @ayham_eth]

@david_lee2085 @arbitrum L2s are as decentralized as your home WiFi network.

[Silo Labs | V3 Live @SiloFinance]

Everyone is celebrating "risk isolation" as the solution to DeFi lending risk.

It's not.

The rsETH situation reveals something deeper:

Lending breaks when assets become unpriceable.

And liquidation stops working.

[Silo Intern @SiloIntern]

DeFi needs more than risk isolation.

Silo v3 was designed specifically to protect lenders from bad debt

Read how👇

[Ayham (AJ) @ayham_eth]

@0x_Abdul They just want to avoid taking responsibility. They charge fees and fatten their pockets but when it comes to protecting their lenders they point figures to Kelp.
Aave is liable to its users.

[Ayham (AJ) @ayham_eth]

1- this was not a bridge exploit.
2- Kelp’s first and foremost mandate is to protect its users, not Aave’s and other protocols’ users
3- Aave is vacating its responsibility of having whitelisted the asset and having been actively managing its risk by reframing the problem around the backing

[Ayham (AJ) @ayham_eth]

Kelp’s first mandate is to protect its users - the holders of rsETH. rsETH on L2s have used technology controlled and managed by the Kelp team - using Kelp UI.
Aave is trying to frame the problem around Kelp to avoid liability for having whitelisted and managed the collateral on their protocol.
These are two separate cases.

[Ayham (AJ) @ayham_eth]

If the haircut were to be socialized, there would be no issue. But since it is the last to withdraw eats the loss, a run on the bank is effectively in action. That is the structural issues with shared lending pools (must exist first to survive)
The run will continue until the system covers the theoretical loss - which we have always been told their Fugazi backstop mechanism would do.
Now if the market crashes and when positions become liquidatable due to increasing borrow rates, the theoretical loss on the book will widen and the run on the bank becomes faster and harsher.

[Ayham (AJ) @ayham_eth]

@duonine @aave This simply means performing liquidations is not possible and the risk of bad debt is elevated.
Instead of increasing borrow rates on ETH, Aave has decreased it, essentially removing any possibility of recapitalizing the pool.

[Ayham (AJ) @ayham_eth]

@MonetSupply @hexonaut This move favors the protocol (prevent capital outflows flow) and borrowers over lenders. It also exposes the prevailing risk mismatch between borrowers and lenders.

A sound decision would have been to increase the borrower rate to force repayments and recapitalize the pool.

[Ayham (AJ) @ayham_eth]

@hexonaut No one in their right mind should use shared lending pools. Any asset that isn’t fully decentralized carries a fundamental risk.
The shared lending pool model is effectively dead.

[Ayham (AJ) @ayham_eth]

@Chain_AlphaX @SiloFinance The difference is that lenders have choses the exposure to rsETH, which is something you cannot do when you supply assets to a shared lending pool.

[Ayham (AJ) @ayham_eth]

@duonine @aave @KelpDAO The best thing you can do to hedge againt a pssible loss is to borrow whatever you can against your ETH deposit.

[Ayham (AJ) @ayham_eth]

@delitzer About 16% of rsETH backing has been stolen.

Users should expect losses to be socialized — implying a ~16% reduction in rsETH value.
This would translate into bad debt for lending protocols with exposure.