The most dangerous prisoner's dilemma in DeFi history

Author: Jocy, Partner at IOSG; Source: X, @jocyiosg

$230 million USD in bad debt remains unresolved. Aave Collector holds over $200 million in liquid assets, and LayerZero has just completed $120 million in funding—both are fully capable of covering the losses. In less than two days, Aave has already bled $8.45 billion in TVL, and the entire DeFi sector has evaporated $13.2 billion. For each additional day this drags on, the number keeps growing.

But neither side responds to who is responsible for the stolen assets, and neither side makes any statement. They’re playing a game of chicken, while the entire DeFi ecosystem is bleeding.

Where did the spirit of DeFi from 2020 go?

On March 12, 2020, ETH fell to $80. On-chain liquidation auctions were bid down to zero due to a lack of bids, and MakerDAO faced a systemic collapse. At that time, the MKR Foundation stepped up to propose auctioning MKR to buy back ETH and cover bad debt, and community whales joined in the bidding.

That time, the Ethereum community and DeFi spirit made everyone proud—when crisis hits, some take responsibility, and some take action.

Today? Silence.

Many friends around me aren’t just withdrawing from Aave—funds from Spark, and even other DeFi protocols, are being pulled as well. They’re not panicking; they’re voting with their feet: if nobody is willing to step up to resolve even a $260 million issue in this ecosystem, why should they keep their money here?

Once these funds leave, they will never come back.

In the past, Aave has gone through many governance crises, and there have always been plenty of people in the community holding different opinions—disagreements never stopped. But today is not the time to debate governance philosophy. Looking back at the prosperity of DeFi Summer, looking back at this decentralized finance world we built together—getting to where we are hasn’t been easy. The future of DeFi shouldn’t be destroyed by a single silence.

This is not just Aave’s issue. Spark, MakerDAO, and all DeFi protocols on Ethereum should all participate in coordination. Trust collapse doesn’t discriminate between protocols. If this is mishandled, the entire DeFi TVL will be re-priced, and everyone will be hurt.

Time is extremely precious.

Aave can fully commit to a backstop first, and then spend time coordinating specific solutions—this would stop the bank run. If the project team continues to stay silent, Vitalik Buterin should step in to coordinate—no need to spend money; one statement like “This matter will definitely be properly resolved” is enough.

For every additional hour of silence, more funds will permanently leak out.

Call on Stani Kulechov, Vitalik Buterin, Aave, KelpDAO, LayerZero, Rune Christensen to communicate publicly and quickly, giving the market a clear signal.

Silence is the worst option.