Liquidity Risks in Lending Protocols (LPs): Evidence from Aave Protocol. (arXiv:2206.11973v1 [q-fin.RM])

Decentralized Finance (DeFi) can replicate most traditional financial
activities. Among various DeFi, Lending Protocols (LPs) resemble banks,
allowing users to borrow and lend cryptocurrencies. By analysing stablecoin
loans in Aave protocol, we find a small group of users with dual roles, i.e.,
borrowers and depositors, and these users account for significant loans and
deposits. Therefore, potential liquidity risks can occur if these users
collectively withdraw deposits and initiate loans, and potential liquidity
risks can affect both loan-specific factors and status …

liquidity protocols