Ethena’s sUSDe Yield Surge Steals Liquidity—Is AAVE on the Brink?

High-yield seduction strikes again. Ethena’s sUSDe vaults are vacuuming up liquidity with eye-watering APYs, leaving rivals like AAVE scrambling. The DeFi hunger games just got a liquidity famine.

Yield chasers pivot hard. When synthetic dollar protocols start offering institutional-grade returns, even blue-chip money markets feel the squeeze. AAVE’s TVL wobbles as capital migrates to the shiny new toy—classic DeFi mercenary behavior.

Inflection point or temporary blip? The smart money’s watching whether this liquidity drain becomes structural. One thing’s certain: in crypto’s yield casino, loyalty lasts exactly as long as the last rebase period.

Aave’s interest rates on borrowings are still decreasing

Conversely, AAVE [AAVE] witnessed a steady decline in its borrowing rates. Most stablecoin borrow rates are between 2–4%, and it is no longer so enticing for lenders seeking high returns.

The decline could potentially mirror a bigger trend, a declining demand for on-chain leverage and excess capital.

In fact, Ethena’s growth might be accelerating the trend. Instead of parking assets in Aave’s lending pools, capital is now flowing toward sUSDe, drawn by superior yield performance.

Source: X

Is Ethena draining Aave’s capital pool?

The timing suggests a potential realignment of capital.

As Ethena PT supply fly above $1 Billion in a month of being listed, Aave’s native protocol gauges are all pointing towards stagnation.

Lower borrowing demand suggests less protocol revenue and less value accrual for the Aave token.

This divergence is threatening as Ethena’s high yields are sucking DeFi liquidity from legacy protocols like Aave.

If the trend continues, Aave may find it difficult to hold its market share, especially with no major innovation or increasing borrowing utility.

AAVE price consolidates under pressure

On the daily chart, AAVE is consolidating below the $270 resistance mark. The earlier bullish trend has flattened, with price action now stuck within a clear supply zone.

While this could reflect temporary indecision, it might also point to weakening fundamentals tied to Aave’s shrinking borrowing activity.

Source: TradingView

Unless borrowing metrics recover, investor sentiment around AAVE is likely to stay cautious.

As yield competition in DeFi heats up, protocol maturity alone won’t be enough—Aave may need a new catalyst to remain competitive.