OneKey Founder Yishi: Aave Protocol Itself Has No Design Flaws, Bad Debt Issue Rooted in Poor Quality of Underlying Assets
OneKey founder Yishi pointed out that the Aave protocol itself has no design flaws, and the root of the current bad debt issue lies in the poor quality of underlying assets. Even with the historical security and risk teams still in place, the outcome would not change; the so-called L2 expansion has not improved asset quality, but rather amplified the illusion of liquidity.
He further emphasized that the current yield and risk in DeFi are severely mismatched, with protocol yields unable to exceed short-term U.S. Treasury yields while requiring users to bear higher risks. The costs of security investments (audits and teams) are rigid, and it has become inevitable to raise fees and infrastructure costs; otherwise, the system cannot be sustained. Meanwhile, the industry is transitioning from a high-yield game phase reliant on "secondary market subsidies" to one of contraction and constraints, with overall TVL facing downward pressure.
Several English research institutions, such as Chaos Labs and Gauntlet, have repeatedly pointed out in past reports that systemic risks in DeFi often stem from fluctuations in collateral assets and liquidity mismatches, rather than from single protocol code flaws; Aave's official documentation has long emphasized that adjustments to risk parameters cannot cover extreme market conditions.
Original text
aave protocol itself has no design flaws, and has done basically everything it can. The previous departures of bgd, aci, and chaos labs have nothing to do with this bad debt; even if they were still here, the same thing would still happen.
Ultimately, it still comes down to the poor quality of underlying assets. L2 is also a false narrative, as it has not fundamentally solved the asset quality issue, but merely amplified the illusion of liquidity.
Safety has rigid costs; internal and external audits cost money, and maintaining a complete security team requires a lot of money. Currently, the yield and risk in DeFi are completely disproportionate; you cannot say that the APY provided by the protocol does not exceed short-term U.S. Treasury yields while requiring users to bear ten times the risk.
Soon, everyone will reprice risk. There is upward pressure on protocol fees and infrastructure costs; otherwise, safety investments cannot be supported. The model of low fees and high risk is unsustainable.
Previously, it was a bubble driven by speculation; high DeFi yields were due to secondary market subsidies for mining tokens. Now, there is a 180-degree turn towards contraction and constraints, and the entire DeFi TVL is struggling to maintain even $85 billion. Get ready to tighten your belts; it’s going to be tough.
Source: Public Information
ABAB AI Insight
The core of this judgment is not about "whether Aave is safe," but rather the failure of the DeFi risk pricing mechanism. In past cycles, yields primarily came from token incentives and liquidity subsidies, essentially discounting future expectations to obtain current yields rather than reflecting real cash flows. When subsidies disappear, risk exposure begins to be priced directly, and asset quality issues are rapidly magnified.
The so-called "L2 narrative" is more about improving transaction efficiency in financial structure rather than enhancing credit quality. Blockchain expansion addresses throughput and cost, but collateral remains high-volatility, highly correlated crypto assets. This means that the collateral base of the system has not undergone a "credit upgrade," but has layered on higher leverage and faster liquidation speeds, compressing rather than eliminating risk structurally.
The rigid increase in security costs is reshaping the business model of DeFi. In traditional financial systems, risk management (capital adequacy ratios, audits, compliance) is inherently a part of profit constraints, while early DeFi narratives of "disintermediation" overlooked this cost. As the market enters a low-yield environment, security costs can no longer be covered by inflationary incentives, making fee increases inevitable, which will compress arbitrage opportunities and reduce overall TVL.
From a longer-term perspective, this marks a transition attempt for DeFi from "liquidity-driven" to "credit-driven," but the current system has yet to establish stable credit assets and reliable cash flow sources. If the underlying assets remain predominantly high-volatility crypto assets, risk reassessment will continue, and the industry's scale contraction is not merely a cyclical fluctuation but a systemic correction of past pricing errors.