Binance said its Oct. 29 security incident involved about $6.34 billion in assets and that it would bear the related financial impact. The event came as the stablecoin market was already contracting: DeFiLlama data put total stablecoin market capitalization at about $293.8 billion on Nov. 3, down more than $10 billion over 30 days. From Oct. 27 to Nov. 3, Aave and Lido saw their total value locked (TVL) fall by about $1.03 billion and $713 million, respectively. TVL reflects the dollar value of assets held in a protocol; by itself, a decline does not establish that users withdrew funds or that a protocol faces solvency problems.
Aave withdrawals remained open during reserve freeze
The Binance incident also involved decentralized lending protocol Aave. A wallet linked to the attacker deposited 60 million USDT into Aave and borrowed 19,762 Wrapped Ethereum (WETH), worth about $44.6 million at the time. Aave risk service provider LlamaRisk said in an Oct. 30 assessment that the position was overcollateralized, remained subject to normal liquidation rules and posed no risk to suppliers.
Aave’s guardians subsequently froze 175 Aave V3 reserves and 117 V4 reserves. While the freeze was in effect, those reserves stopped accepting new deposits and additional borrowing, but repayments, withdrawals and liquidations remained available. Users could withdraw tokens already available, though new deposits could not replenish liquidity.
LlamaRisk said withdrawals pushed utilization in some large reserves to between 92% and 100%, meaning nearly all deposited funds had been lent out. Borrowing costs rose, prompting protocol managers to temporarily lower the upper end of the rate curves. The affected reserves reopened around Oct. 31. In a Nov. 2 update, LlamaRisk said some non-stablecoin collateral settings had been restored and that rate curves for the relevant reserves returned to pre-incident levels on Nov. 1.
However, USDT, USDC and USDT0 remained at zero borrowing power as collateral in the affected configurations. Under those settings, the stablecoins could not be used to borrow against; the restrictions depended on the specific reserve configuration.
TVL declined across five major protocols
Comparing date-level figures for Oct. 27 and Nov. 3, Aave recorded the largest dollar decline in TVL. Lido lost $713 million over the same period, while JustLend, Morpho and Sky also posted decreases.
| Protocol | Oct. 27 TVL | Nov. 3 TVL | Decline |
|---|---|---|---|
| Aave | $17.435B | $16.405B | $1.030B |
| Lido | $22.557B | $21.844B | $713M |
| JustLend | $6.856B | $6.419B | $437M |
| Morpho | $11.450B | $11.092B | $358M |
| Sky | $5.469B | $5.157B | $312M |
Because TVL is measured in dollars, falling token prices can reduce the figure even if the number of tokens deposited does not change. A lower TVL alone therefore cannot confirm that assets have left a protocol or indicate that it is insolvent.
Stablecoin market had begun shrinking earlier
DeFiLlama data showed stablecoin market capitalization down about $10.8 billion over the past 30 days. Estimates based on its rounded market values and change proportions suggest USDT and USDC accounted for about $8.4 billion of that decline. A separate historical data series, using a different coverage scope, showed total stablecoin market capitalization falling from $308.8 billion on Oct. 4 to $303.3 billion on Oct. 27, indicating that the contraction began before the Binance incident.
Redemptions by stablecoin issuers convert circulating tokens into fiat currency. That is different from users moving tokens from exchanges to personal wallets or other addresses, and freezing stolen tokens does not automatically remove them from circulating supply. For lending markets, a more immediate concern is whether users can access liquidity when needed: thinner trading pools can increase slippage for a given trade size, higher reserve utilization can raise borrowing costs, and falling collateral prices can increase liquidation risk.
A rebound in dollar-denominated TVL alone would not show that liquidity conditions had improved. More direct indicators include a recovery in net stablecoin issuance, returning deposits to lending markets, lower reserve utilization with more funds available for withdrawal, and stabilizing collateral prices.