As of January 2026, the active loan volume in the on-chain lending ecosystem of Ethereum has surpassed $28 billion, setting a new record. Token Terminal data shows that compared to the lows at the beginning of 2023, this metric has increased more than tenfold. Among them, Aave accounts for approximately 70% of the market share, becoming the core engine supporting the entire Ethereum DeFi lending system, and also giving the network a significant advantage in scale over competing blockchains like Solana and Base.
The continuous expansion of lending activity reflects that DeFi is being adopted by more institutions and long-term users. By Q3 2025, the total cryptocurrency lending volume had risen to $73.6 billion, a 38.5% quarter-over-quarter increase. Analyst Kobeissi pointed out that the approval of Bitcoin ETFs and industry recovery have driven a rapid rebound in on-chain financial demand. However, the rising concentration of lending also means that in extreme market conditions, automated liquidations could be amplified.
This risk was put to the test during a weekend in late January 2026. At that time, Bitcoin rapidly dropped from about $84,000 to below $76,000. Due to weekend liquidity shortages, tensions in the Middle East, and uncertainties around US government funding, the total global leveraged position liquidations exceeded $2.2 billion within 24 hours. Aave completed over $140 million in automated liquidations across multiple networks. Even when Ethereum Gas fees soared above 400 gwei, there was no system crash or bad debt.
If this core protocol fails, undercollateralized loans could quickly accumulate, triggering a chain reaction. Fortunately, Aave’s stable operation prevented the spread of risk. Platforms like Compound, Morpho, and Spark also participated in absorbing liquidation pressure, but still cannot fully replace in scale and automation. Major holders like Trend Research also sold some ETH to repay loans, leveraging the Aave mechanism to reduce leverage.
This incident demonstrates that while Ethereum’s lending system is expanding, it is also gradually maturing. Although the AAVE token dropped over 6% in the past 24 hours, Aave’s performance in extreme conditions has reinforced its position as a “DeFi stabilizer” in turbulent markets.
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