Ave sees a $200M weekly increase in cbBTC earnings, but there is a catch

Ethereum-based cryptocurrency lending protocol Aave is seeing a rapid increase in Coinbase Wrapped Bitcoin (cbBTC) flows to the platform thanks to a new incentive program involving the asset.

While this reflects the increasing liquidity and acceptance of the packaged Bitcoin product on Aave, market analysis platform IntoTheBlock says it creates concerns for users. According to IntoTheBlock on Twitter, if the situation goes sideways, users will not be able to pay off their loans on Aave for the time being.

cbBTC adds $200M every week on Aave

Earlier this year, Ave launched Merit, a system designed to reward users who participate in activities on the platform. Some of the activities that can get incentives from the program include stkGHO, a staked version of Aave's algorithmic dollar-pegged stablecoin, GHO and borrowing USD Coin (USDC), crypto exchange Coinbase's Ethereum-based Layer-2 protocol.

In mid-August, Aave implemented the Decentralized Autonomous Organization (DAO) Merit Incentive Program on Base, to reward users on L2 who contribute to the development of the Aave ecosystem.

As Coinbase prepares to launch cbBTC in mid-September, Ave has presented another proposal to use the protocol to onboard a sealed token.

About a month after cbBTC's launch, the Aave DAO service provider revealed that the protocol has captured 56 percent of cbBTC's circulation. The tweet also revealed that Ave will launch a new merit program for cbBTC and users will be able to earn rewards for borrowing the wrapped token USDC, transferring Tether (USDT) debt to USDC, and converting from BitGo's Wrapped Bitcoin (WBTC). to cbBTC

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Since Aave DAO launched the cbBTC Merit program on October 24th, the amount of sealed tokens on the protocol has increased by 2,700 BTC to approximately $200 million, which is 7,500 BTC out of the total cbBTC in circulation on the network of 11,885 tokens. This growth has moved cbBTC to the fourth largest asset to borrow USDC, making the token hold 12% of all securities.

IntoTheBlock stated that this development opened the “Lend cbBTC -> Borrow USDC -> Borrow USDC” strategy, as a result of which the share of USDC debt for frequent deposits increased by 2% and even 7% at one time.

While this development is somewhat impressive, it also puts consumers at risk, as a whale of USDC supply suddenly exits the market, leaving consumers unable to settle their trades if they have to repay the loan.