The market freezing measures taken by Aave have drawn external scrutiny. A previous social media post claimed that an attacker associated with Binance deposited $60 million worth of stolen USDT before the issuer's freezing measures took effect, and lent out approximately 19,762 ETH.

• Emilio describes market freezing as a preventive measure aimed at helping issuers seize stolen funds.
• Another post claimed that the attacker borrowed 19,762 ETH tokens using $60 million USDT as collateral.
• Morpho's Paul Frambot defends the isolated lending market, claiming that it helps to contain financial contagion.
• Marc Zeller then questioned the protection mechanism of Morpho, pointing out differences in emergency control and loss coverage.

Emilio posted on X, stating that the purpose of this intervention is to prevent attackers from using Aave deposits to complicate the recovery of assets. His explanation addressed concerns from the outside world regarding whether the market freeze itself implies problems with that lending protocol.

"This is just a preventive measure," he wrote, explaining that reducing the borrowing limit to zero could potentially be sufficient to render the borrowing function inoperable.

However, he stated that if deposits continue to be allowed, another route will be maintained, allowing attackers to transfer the stolen assets into the protocol. The purpose of freezing the market is to block this route during the period when the asset issuers are seeking to recover their funds.

Aave calls freezing a measure for asset recovery

The explanation provided by Emilio distinguishes between "preventing new loans" and "preventing new deposits." Setting the borrowing limit to zero can address the former issue, but he mentioned in his post that if the market remains open to deposits, attackers can still provide assets.

He believes that allowing these deposits may make it more difficult for asset issuers to seize stolen funds. Therefore, the clear purpose of the freezing measures is to support the recovery efforts by restricting further use of the relevant markets.

His post did not specify which markets were involved, nor did it provide details about the size of any affected positions, or announce how the losses would be allocated. The post merely explained the reasons for implementing the restrictions without providing a timeline for their removal.

This intervention was later included in another discussion: whether the attackers had already utilized Aave to obtain ETH using the stolen stablecoins as collateral.

60 million US dollars USDT The focus is on the loans ETH

On X, a commenter named nug claimed that just a few minutes before the freeze took effect, this attacker identified as Binance stole $60 million and deposited it into Aave.

The account stated that the attacker used this deposit as collateral to borrow approximately 19,762 ETH, and then transferred the borrowed cryptocurrencies away.

According to the description of the transaction in that post, the attacker retained the freely tradable ETH, while keeping the USDT that supported the loan within Aave. The author described this position as overcollateralized and believed that the borrower had little reason to repay voluntarily.

The post also claims that blacklisting the attacker's wallet will no longer affect the USDT that has already been deposited into the Aave contract. The post compares this situation with the borrowed ETH, stating that the latter could not be frozen by its issuer.

These statements are the commentator's explanation of what is referred to as an escape route. Neither the post with Emilio nor the aforementioned transaction description have announced that Aave has written off the loan, recorded the funding gap, or allocated the losses to depositors.

Morpho's Paul Frambot defends the isolated market

After Paul Frambot under Morpho published a piece of information regarding risk management during periods of industry turmoil, the discussion further escalated into a debate about lending architectures.

Frambot indicates that Morpho has been built around isolated markets from the very beginning, allowing users to choose which markets they are exposed to. In his description, if a problem occurs in one market, it will not automatically spread to other markets.

He said that collateral reuse is optional, and counterparty risk exposure can also be controlled. He wrote that an optional licensing mechanism – including on Midnight or through a vault – allows participants to define who can lend and borrow.

"None of these can completely eliminate the risk," stated Frambot.

He acknowledges that as decentralized finance absorbs this impact, individual markets may face liquidity constraints and interest rate fluctuations. The focus of his defense is to limit the issues to within a single market, while also admitting that participants in these markets may still encounter disruptions.

Marc Zeller Questions the Emergency Protection Mechanism of Morpho

In responding to Frambot, Marc Zeller believes that the design of Morpho Blue lacks several tools that are present in the Aave scheme.

Zeller indicates that the market for Morpho Blue cannot have its activities frozen, its interest rate curve cannot be intervened with, nor can rate limits be implemented. He also pointed out that it lacks the Umbrella secondary stratification used to protect deposits.

In his criticism, isolation cannot eliminate the losses that have already occurred within a failing market.

"When an isolated market collapses, its lenders have to bear 100% of the losses," writes Zeller.

While criticizing the support for affected users, he mentioned disturbance incidents at the Stream and Elixir vaults. Zeller further claimed that Morpho added approximately 2.15 billion US dollars in active loans during the year and compared this figure with the lending activities he said were brought about by the launch of Plasma.