Author: Zuo Ye Web3

Aave distributes "triangular debts," with Stani posing as the coordinator.

The shockwave from Kelp DAO to Aave gradually subsided, and everything seemed to return to normal.

DeFi protocols can claim that the DAO mechanism is effective, LST/LRT protocols prevent a collective collapse, and many retail investors also fantasize that DeFi United will provide airdrops.

However, DeFi United is still a subset of “loss socialization”, but it is different from direct bailouts by DAOs/treasuries and also resembles debt restructuring in traditional finance.

Using this as an example, let's delve into how DeFi can become a more efficient financial system , offering some comfort in our increasingly dull world.

In past safety incidents, some companies, like Balancer, shut down directly, while others, like Tribe DAO, offered full compensation. However, the outcomes were highly similar: the agreements themselves could not be continued, and the companies became insolvent and went into liquidation.

Therefore, to define the scope of this discussion, only agreements with cash flow operations, such as Aave/Curve, are likely to try new crisis management paradigms. The reason is not complicated—keeping the agreement running is profitable for all parties involved.

Parties involved in the agreement: To whom are they responsible, and who is taking action?

"The Exit Moment for Old DeFi Enthusiasts"

With the breach of Aave, the relics of the 2020 DeFi Summer were almost completely wiped out, and DeFi security is no longer a theoretical optimum, but faces numerous real-world challenges.

All of this is still happening before DeFi has reached the mass market. Sky accepting Aave safe-haven funds is just an internal game.

External institutions will only increase fear. If token economics is taken over by AI and DAO governance is actually taken over by project teams, then DeFi or blockchain will no longer have a subject-based narrative.

However, every crisis presents an opportunity. The Aave incident has given us confidence to rebuild the DeFi narrative. After the Kelp DAO collapse, five narratives emerged in the market:

Bad debt allocation: EF, LayerZero/Kelp/Aave Umbrella/Aave DAO, Arbiturm
Responsibility allocation: LlamaRisk (Chaos Labs absconded promptly), Kelp, LayerZero, Aave DAO
Liquidity: DeFi has been less impacted in terms of funding, but significantly in terms of confidence, with funds flowing to Sky/Spark and numerous micro-lending protocols.
Technical Design: Monolithic 🆚 Modular (Aave 🆚 Morpho), Single Currency ($USDS) 🆚 Multi-Currency
Industry self-rescue: Aave founder Stani unites numerous protocols to counter CZ & Binance after FTX, and Morgan Stanley & the US government in every crisis.

There has been a great deal of discussion on the first four narratives, but when it comes to how the industry can save itself, most of the discussion is still about the binary opposition between social loss and Bailout. But in my opinion, Aave’s debt restructuring and Curve’s attempt at “debt tokenization” are more interesting.

<center>Image caption: Aave debt restructuring</center><center>Image source: @zuoyeweb3</center>

Image caption: Aave debt restructuring

Image source: @zuoyeweb3

If you look at the respondents of Aave DeFi United, they can be basically divided into three categories: Aave protocol stakeholders, LRT industry stakeholders, and ETH overall stakeholders.

In absolute terms, retail donations are a small proportion of the overall amount. It is not surprising that the pledges and claims of various protocols "saved" the Aave market. Aave is in an absolutely core position in the Ethereum ecosystem, and if the LRT protocol stands idly by, the sharp drop in ETH prices will also affect its own security.

US debt is not debt; it's a tax on the world. Aave's "externalization" of bad debts is a drain on the industry, and it poses a potential threat to the ETH and LRT protocols by leveraging its industry position.

What's even more noteworthy is that this crisis only affected the protocol layer, not the retail investor side, nor even the fundamentals of $ETH, nor the price of the $AAVE token.

All the panic will be reflected in the price. It can be said that Aave users have been separated from the retail investor profile and it is purely a game for big players.

This is Aave's core advantage in its ability to link protocols: a small number of large holders don't run away, and external protocols don't impact it. Aave's fundamentals are just the daily changes in TVL. If the comparison isn't obvious, you can think of how Binance amplified the crisis against Hyperliquid, most notably with $JELLYJELLY .

While Aave impersonated JPMorgan Chase by leveraging its industry position, Stani was indeed "coercing" the industry to provide financial support to Aave. However, given Vitalik's silent and virtuous stance and EF's active selling of tokens, Stani has already done more than enough.

It even sets an example for the industry: the real crisis lies not in technology, but in the liquidity between various protocols. This does reflect the scarcity of retail investors on the blockchain, but it also provides a reference for the industry.

Before this, the protocol could only be shut down, and the tokens would inevitably go to zero, giving the protocol's creditors something to look forward to, and allowing creditors and token holders to maintain aligned interests.

For example, Mantle can lend up to 30,000 ETH to Aave, with Aave using its own tokens worth $11 million as collateral. Mantle can also receive Aave protocol revenue to repay the loan and lock in profits at the Lido staking rate plus a 1% premium.

In this small "triangular debt" situation, the interests of the four parties—$AAVE holders, Aave DAO, Mantle DAO, and $MNT holders—are re-aligned, and Mantle increases its influence within the Aave system.

Since Friedman put forward the "shareholder best interests first" doctrine in the 1970s, coupled with the Reagan administration's allowance of stock buybacks, tokens have been regarded as the secret to aligning the interests of the protocol and its holders.

This secret is still in effect today; Sky really does distribute 100% of the government bond yields to $sUSDS holders. This secret has backfired; the mansions of Stani and Curve founders were built on massive token sales and DAO revenue distribution.

However, when the protocol grows to a sufficiently large scale, this token binding force revives. New projects in the Curve ecosystem are not accepted by the market, and Stani, after leaving Aave, is idle and eventually chooses to regain control.

No one can replicate their success, not even someone who was once incredibly successful.

The Rise of the Third Way

We tend to overestimate the short-term effects of a technology and underestimate its long-term effects.

Stani is not responsible to $AAVE (maximizing shareholder equity) or to the Aave DAO (publicizing the governance system), but only to the Aave brand and "capital value." It's cruel, but that's the future. It's even two sides of the same coin as Sky, with the token just a parameter adjuster .

This does not conflict with what was mentioned earlier. Traditional relief or socialized approaches cannot be simply equated in Aave. Essentially, Aave replaces the current protocol liquidity with its own expected cash flow.

Through the token mechanism, referencing the Mantle case, each protocol will ultimately benefit the holders. From a procedural standpoint, the proposal through the DAO mechanism also supplements its legitimacy.

In traditional finance, socialized losses are accompanied by the privatization of profits, leaving end users with a share of the blame and no hope of getting a share of the profits.

defi_risk_evolution_scatter

Image caption: DeFi debt resolution methods

Image source: @zuoyeweb3

If we look at the entire DeFi bad debt handling process, it is a post-event process, starting with the operation of the protocol, with auditing and security measures beforehand, and recourse and restructuring afterward.

Compared to the lengthy processes and high costs of traditional finance, such as the handling of FTX debt, DeFi has been effectively implemented in various aspects.

April 2026 was marked by a series of crises, from Drift at the beginning of the month to Kelp at the end. However, there were fewer and fewer pure bug cases at the code level, and more social engineering attacks “targeting people”, which at least partially verified the effectiveness of code auditing.

However, insurance mechanisms have never become a mainstream option. Nexus Mutual's insured amount is only around $200 million, which is negligible compared to DeFi TVL.

In dynamic protocol protection, AI/Agent has already been applied. Hexagate, which was acquired by Chainalysis, had already marked $400 million worth of high-risk asset addresses on 75 chains in Q1 2025, and could provide an early warning 18 hours in advance if Venus Protocol was attacked.

However, the actions of Curators like Re7 are intriguing. Before the $xUSD collapse, they had already noticed the abnormality in its risk control indicators, but under the stimulus of "increasing APY", they ultimately chose to approve it all the way until the case was exposed. This is similar to social engineering attacks, where people are the most unstable factor in the whole process.

Today, the "human + model" model has become the industry mainstream. Model capabilities are increasing day by day, while the human factor will become the key to victory or defeat.

Before the concept of agents became popular, in 2022, Gauntlet built Agent-Based Simulations, modeling different roles, such as borrowers, liquidators, and LPs, as agents to simulate their performance in different environments. Starting from the role of protocol technology service providers such as Aave/Compound, it expanded into a standard feature of Vault during the Morpho era.

A skilled strategist achieves victory without ostentatious feats; today's risk control has long since entered a real-time phase.

In the era of AI agents, Chaos Labs, which ran away with Aave, is another typical example. By training on Crypto's historical data, it can simulate security events in a more realistic environment and has already launched a multi-agent engineering flow.

Each agent is responsible for a single parameter, such as the supply limit, and they are ultimately combined into a modular product. With the addition of an optimistic execution mechanism, humans retain control over it.

Image description:</center><center>Image source:</center>

Image caption: Agentic Finance framework

Image source: @chaoslabs

Its latest development is the proposal of a five-layer Agentic Finance framework, which deepens agent capabilities layer by layer from data reading to analysis assistance to restricted operation to decision execution to autonomous management, while security and risk control are embedded in it.

In the AI era, we need to rewrite the DeFi security mechanism, and on the economic level, Curve offers another approach—debt tokenization.

During the 10/11 attacks, Curve's LlamaLend accumulated $700,000 in bad debt. While the absolute amount was not large, the team proposed a "debt tokenization" mechanism. Lenders could exit bad debt at market price and sell at a discount to obtain liquidity. Buyers would receive tokens representing their current "loss position." If the CRV price recovered, they would gain the difference; if the CRV price remained unchanged, they would lock in their current gains.

However, judging from the discussion of the DAO proposal, user acceptance is limited. The core issue is doubt about the potential for CRV price growth and the source of initial trading liquidity. Considering the Curve team's past operations on Yield Basis , it is highly likely that crvUSD will be issued to provide initial liquidity.

The idea is sound: the debt tokenization market is indeed more profitable than insurance. As long as the protocol's fundamentals are good, maintaining its long-term profitability will be more advantageous than shutting it down directly.

With Agents becoming increasingly powerful, the rewriting of DeFi is already underway. The number of Skills and Agents is increasing daily, but economic models such as Tokens and DAOs, which are designed for humans, are still dying out. This is the technical debt that Agents must face.

Conclusion

"Aave has surpassed Binance, but it is still far behind JPMorgan Chase."

If you feel guilty about engaging in DeFi, then think of the time in 1932 during the Great Depression when the head of Morgan suggested that New York's working class donate their wages to save the financial giants.

If you don't believe that on-chain technology is the future of finance, then Morgan Stanley could retain its NYSE listing to save on transaction fees, but refrain from stock trading for the long term to improve capital efficiency.

The essence of finance is intermediation. $AAVE has successfully attracted large investors. Retail investors don't need to worry too much about Stani messing with the Aave protocol to the point of collapse. Instead, they should consider the opportunity for people to take over the DeFi era through agents.

Curve创始人Michael Egorov持有1.4亿美元CRV借贷仓位已被清算

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