Important Ethereum Signal: ETH Whale Exits Aave with $1.7 Billion, Triggering Panic of stETH Depegging

In the past week, Ethereum (ETH) worth $1.7 billion was withdrawn from the Aave platform, triggering a series of reactions in the market. This massive withdrawal led to a sharp decline in ETH liquidity on Aave.

Ethereum whale movement leads to a significant drop in stETH price

The continuous exit of whales on Aave has pushed up the utilization rate, leading to a surge in ETH lending rates.

As borrowing costs become expensive, DeFi users relying on leveraged staking strategies are starting to close their positions.

One of the strategies most severely impacted is the popular stETH/ETH leveraged cycle. The chart shows that the peg rate of stETH to ETH had significantly decreased before recovering.

(Source: Trading View)

Users typically deposit ETH, collateralize to borrow, purchase stETH, and repeat this cycle to earn staking yields. However, higher borrowing rates and the weakening of the stETH pegged exchange rate have rendered the strategy unprofitable.

As arbitrageurs begin to exit, many are rushing to exchange stETH for ETH. This has led to congestion in the staking withdrawal queue, with the current processing time being around 18 days.

To avoid waiting, some users sold stETH on the secondary market, resulting in a decoupling rate of about 0.3%.

This slight decoupling poses a significant risk for leveraged traders. A 0.3% price gap could mean a 3% loss with 10x leverage, forcing many to either take losses or wait for illiquid positions.

If the interest continues to accumulate, the situation may worsen and could even trigger a liquidation.

The price chart reflects this pressure, with ETH rising over 8% in the past week to $3,593, but has since retreated from its peak.

At the same time, sETH (synthetic ETH issued by Synthetix) has risen by 30.5% in a week, indicating a strong demand for alternatives in a volatile situation.

This incident highlights the systemic vulnerabilities of DeFi. A large-scale withdrawal disrupted borrowing rates, undermined popular strategies, and exposed reliance on oracle and delayed redemption mechanisms.

Due to many stETH oracles still using redemption rates instead of market rates, lenders remain trapped as the pegged exchange rate fluctuates.