3. Why Aave's Unified Pool Turned a Bridge Hack Into $193M in Bad Debt

This episode shows how Aave's commingled pools enabled large LST‑ETH leverage loops, exposing automated vaults (like Etherfy) and systemic collateral risks.

Key Takeaways

Aave v3’s commingled pools and shared-risk model enabled large LST‑ETH looping, amplifying borrow power and increasing attack severity across depositors.
Leverage loops between staked ETH and wrapped ETH drove most ETH borrow demand, raising ETH APY (~1.7%) and concentrating exposure in LSTs.
On-chain labeling (Arkham) links top wrapped‑ETH debtors to automated vaults—Etherfy’s vault product is a leading example of looping automation.
98% of collateral backing risky positions were LSTs; looping can be excess leverage, warping incentives and triggering rapid deleveraging via variable rates.
About 40% of OFT deployers still use one‑of‑one signers (LayerZero default), prompting freezes; one‑of‑one signers should be flagged as collateral risk.
Risk mitigations like circuit breakers, rate limits, and lender-level asset restrictions (Morpho model) would reduce commingled‑pool amplification and systemic risk.

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