Aave restricts $136 million tBTC market after Threshold pauses Bitcoin redemptions
In brief
- Aave's guardian multisig restricted the Ethereum V3 Core tBTC market at 10:01 UTC on Oct. 31.
- Supplied tBTC totaled about 1,760 tokens worth $136.6 million, roughly 42% of circulating tBTC.
- Threshold says tBTC is fully backed, citing 4,320 BTC against 4,185 tBTC.
- Threshold hasn't disclosed the security issue or given a reopening date.
- Gauntlet pulled about 65,000 USDC from a tBTC-backed Morpho market.
What Aave changed
Aave risk service provider LlamaRisk recommended an immediate freeze of tBTC on the protocol's Ethereum V3 Core market, according to CryptoSlate. Aave's guardian multisig carried out the restriction at 10:01 UTC, per an Oct. 31 governance notice, blocking new tBTC deposits and its use to increase borrowing power.
The market is big. About 1,760 tBTC worth $136.6 million was supplied at the time, roughly 42% of tBTC's circulating supply, CryptoSlate reported citing the notice. Only the Ethereum Core reserve was affected (tBTC markets on Base and Arbitrum had already been frozen in earlier asset deprecation rounds).
Repaying and withdrawing don't get anyone back to native Bitcoin, though. While redemptions are paused, tBTC holders who want BTC have to rely on secondary-market buyers. LlamaRisk said it'll keep monitoring collateral positions and secondary-market liquidity before recommending that Aave restore normal operations.
Threshold says reserves are intact
In its Oct. 31 security update, Threshold said tBTC remained fully backed, with about 4,320 BTC held in bridge wallets against 4,185 tBTC in circulation. Those are the project's own figures (they haven't been independently verified), and they'd put reserves about 135 BTC above supply.
“tBTC remains fully backed, and no funds have been lost,” the project stated
Threshold also said investigators found no unauthorized minting and that the situation was contained. It hasn't disclosed the specific security issue or given a reopening date. Existing tBTC stays transferable across Ethereum and layer-2 networks, while new deposits, minting and redemption requests are suspended. Users were told not to send Bitcoin to previously generated deposit addresses or repeat pending transactions, and Threshold pledged another update within 24 hours.
The liquidity question for defi lenders
Gauntlet flagged a smaller exposure on Morpho. Its Ethereum Morpho USDC Core vault had about 704,000 USDC supplied to a lending market backed by tBTC collateral, the firm said in an Oct. 31 statement. Gauntlet put that market on its emergency exclusion list and withdrew about 65,000 USDC in available liquidity, leaving roughly 640,000 USDC supplied.
Gauntlet warned the suspension could affect tBTC's secondary-market liquidity and lenders' ability to exit positions during liquidations.
A major drop in liquidity, or a discount to Bitcoin, could make collateral liquidations harder, CryptoSlate noted, especially for lending markets with large tBTC exposure.
Frequently asked questions
Can existing Aave tBTC users still repay or withdraw?
Yes. According to CryptoSlate, existing users can keep repaying loans and withdrawing eligible collateral, and liquidations stay active under existing risk parameters. The restriction blocks new tBTC deposits and using tBTC to increase borrowing power on Aave's Ethereum V3 Core market.
Is tBTC still backed while Threshold's bridge is paused?
Threshold said in its Oct. 31 security update that tBTC remained fully backed, with about 4,320 BTC in bridge wallets against 4,185 tBTC in circulation. Those figures come from the project and haven't been independently verified. Threshold also said no funds had been lost.
Why are lenders worried about tBTC liquidity?
With redemptions suspended, tBTC holders who want native Bitcoin have to rely on secondary-market buyers. Gauntlet warned this could affect tBTC's secondary-market liquidity and lenders' ability to exit positions during liquidations, especially in markets with large tBTC exposure.
