Aave DeFi lending monopoly reaches 51%, creating a systemic feedback loop with only a $460M backstop

Aave now controls 51.5% of the DeFi lending market share, the first time any protocol has crossed the 50% threshold since 2020. The milestone arrives not through competitor collapse but through steady accumulation: Aave's $33.37 billion in total value locked sits atop a $64.83 billion lending category that has consolidated around a single liquidity hub. The concentration raises a question DeFi has avoided for years: when one protocol becomes the ecosystem's primary margin engine, does efficiency create fragility? The answer depends on the metric used. Aave's total value locked (TVL) dominance reflects collateral custody, not credit exposure. DeFiLlama excludes borrowed funds from lending TVL calculations to prevent cycled lending from inflating figures. As a result, Aave's $24 billion in outstanding borrows translates to a 71% borrowed-to-TVL ratio, meaning the protocol runs meaningful leverage atop its collateral base. That makes Aave less a passive vault and more an active leverage machine, where systemic risk manifests not through size but through the speed and violence of forced deleveraging when markets turn. Related Reading Aave active loans hit record $30.5B, commanding 65% of DeFi lending market Aave also commands a total value locked (TVL) of $42 billion, making it the largest DeFi protocol by TVL. Sep 19, 2025 · Gino Matos Aave's market share in DeFi lending surpassed 50% in 2026, the first time since 2020 any protocol crossed that threshold. DeFi liquidation engine at scale The Oct. 10 washout provided a preview. Over two days, Aave on Ethereum processed $192.86 million in liquidations, with wrapped Bitcoin accounting for $82.17 million of the total. The episode marked the third-largest liquidation day in the protocol's history. Liquidators collected roughly $10 million in bonuses, while Aave's treasury captured $1 million in fees. The system worked: collateral moved from underwater borrowers to liquidators without observable bad debt accumulation or o...