DefiLlama founder 0xngmi has publicly refuted claims that Aave's Total Value Locked (TVL) is artificially inflated by circular borrowing and looping strategies. In a detailed response on X, 0xngmi clarified that DefiLlama's methodology explicitly excludes borrowed assets from its TVL calculations, stating that "cycled lending doesn't inflate" the platform's reported numbers. This addresses concerns raised within the community that complex strategies, such as those involving Ethena's USDe and restaking-linked collateral, were distorting Aave's apparent size.
The debate emerges as leveraged DeFi strategies on Aave have grown more sophisticated. Aave itself has described how Ethena's model and related "looping" strategies can create "leveraged fixed yield with extreme capital efficiency" by repeatedly borrowing against the same collateral. Despite this complexity, 0xngmi maintains that DefiLlama's tracking—which counts only tokens locked as collateral, not borrowed coins—ensures TVL is not artificially pumped. He acknowledged that duplicate calculations from Ethena collateral loops were previously removed from ancillary data after user feedback.
Meanwhile, the broader DeFi ecosystem is experiencing significant turbulence following a massive security breach. The $293 million exploit of the liquid restaking protocol KelpDAO over the weekend has triggered a widespread decline in TVL across multiple blockchain networks. Data from DeFiLlama shows at least 126 tracked networks saw TVL decreases in a 24-hour period, with CosmoHub suffering the most severe loss of over 1,500%.
The pullback has affected major chains, with Ethereum's TVL dipping nearly 11% and Solana's down just over 4%. Other significant chains like Arbitrum, Base, and Avalanche saw declines of 9.97%, 5.76%, and 6.61%, respectively. Analysts attribute this to a market-wide repricing of risk and reward, with capital exiting DeFi protocols in the hack's aftermath. LayerZero has attributed the KelpDAO attack to the Lazarus Group's TraderTraitor unit.
In contrast to Aave's defended metrics, data shows its TVL had surged by more than 45% in some periods, climbing from roughly $24 billion to about $34.9 billion. Concurrently, Aave's native token AAVE has been trading with a market cap around $1.45 billion, with prices fluctuating between $89 and $94, far below its all-time high of $661.69 set in May 2021.
