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Aave V3 avoided bad debt in 2024 by shifting risk to borrowers during liquidations, says Bank of Canada study.

Protocol Fundamentals
03 Apr 2026
Cointelegraph
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Neutral
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A Bank of Canada study found that Aave V3 reported zero non-performing loans in 2024 by using overcollateralization and automated liquidations to protect lenders. However, this model shifted risk onto borrowers, who faced significant losses during sharp market downturns and liquidation events. Recursive leverage amplified borrowing demand but increased borrower exposure, with major liquidations concentrated in a few wrapped assets. The study highlights a tradeoff between lender protection and borrower risk in decentralized lending platforms like Aave V3.

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