# Liquidity Risks in Lending Protocols: Evidence from Aave Protocol

arXiv: https://arxiv.org/abs/2206.11973 · HTML: https://mlsanity.com/paper/2206.11973/

## Key facts

- Cited by 1 papers in the map (data through 14 Oct 2026).
- First posted on arXiv 23 Jun 2022.

## Built on by (most cited first, 1 of 1)

- [Investigating Similarities Across Decentralized Financial (DeFi) Services](https://mlsanity.com/paper/2404.00034/) (2024)

## Abstract (arXiv)

Lending Protocols (LPs), as blockchain-based lending systems, allow any agents to borrow and lend cryptocurrencies. However, liquidity risks could occur, especially when salient loans are initiated by a particular group of borrowers. This paper proposes measurements of liquidity risks, focusing on both available liquidity and market concentration in LPs. By using Aave as a case study, we find that liquidity risks are highly volatile and show complex effects on Aave, and liquidity in Aave may affect across on-chain lending market. Compared to new users, regular users that repeatedly borrow cryptocurrencies may negatively affect Aave protocol, implying that user loyalty is a double-edged sword for LPs.