Delphi Digital Highlights Structural Issues in Aave's Ethereum Market

Delphi Digital has identified significant structural issues within Aave's Ethereum market, particularly concerning the lending markets for WETH, USDT, and USDC. According to ChainCatcher, these three markets account for 89% of total borrowing on Aave, with supply rates approximately 25%-35% lower than borrowing rates. This discrepancy results in an annual deadweight loss of about $52 million, nearly half of Aave's annualized revenue for the first quarter. Even if the reserve factor is completely eliminated, a loss of approximately $36 million would still persist. Delphi Digital argues that Aave's peer-to-pool model has inherent structural flaws. The issue was further highlighted by the April 18 KelpDAO bridge attack, where attackers leveraged $292 million in rsETH for borrowing on Aave, resulting in nearly $200 million in bad debt. This incident led to a 100% utilization freeze in major markets like WETH for five days.