Aave Loans Face Liquidation Delays Over Collateral Cash-Outs

Aave loans backed by yield-bearing collateral had narrow buffers before liquidation in Oct. 9 reviews of markets on Monad and Arc. Converting the collateral into cash could require a market sale, a bridge transfer or a redemption queue.

On Monad, every top supplier of PT-AUSD-17DEC2026 had outstanding debt. Their health factors ranged from 1.01 to 1.18, with a median of 1.03. An Aave position becomes eligible for liquidation when its health factor falls below 1.

USDC was the main debt asset for those borrowers, followed by USDT0. PT-AUSD and the two stablecoins have related price exposure, allowing borrowers to use more leverage. A small decline in collateral value can reduce the health factor.

PT-AUSD represents a claim on AUSD that matures on Dec. 17, 2026. Before maturity, a liquidator would generally need to sell the principal token into Pendle’s standardized yield wrapper, known as SY, and then convert the proceeds into a token accepted by Aave. After maturity, PT-AUSD can be redeemed into SY without the market sale. Further conversion may still be needed to obtain USDC or USDT0 for debt repayment.

The Monad PT-AUSD supply cap was 30 million and was fully used on Oct. 9. The review recommended raising it to 60 million. The larger limit would allow more collateral to be deposited, while the amount a liquidator could recover would depend on buyers, sale size and price impact.

The Monad launch parameters included a 95% liquidation threshold, a 93% borrowing limit and a 2.62% liquidation bonus for stablecoin E-mode. A liquidator would compare that incentive with the cost of converting PT-AUSD into the borrowed stablecoin.

On Arc, two positions held about 97% of the syrupUSDC supplied to Aave. Their health factors were 1.02 and 1.01. All outstanding debt from syrupUSDC suppliers was in USDC.

A liquidator could sell syrupUSDC on Arc or bridge it to Ethereum and request redemption from Maple’s yield-bearing vault. A September assessment using Sept. 23 liquidity data found that a Uniswap V4 syrupUSDC/USDC market could produce about $500,000 before its available USDC liquidity was exhausted.

The assessment found no native Arc redemption route. The bridge transfer to Ethereum was estimated to take two to five minutes under normal conditions, with throughput of about $10 million an hour. Maple withdrawals are processed in a first-in, first-out queue when liquidity becomes available. Most withdrawals take less than 24 hours, while the stated maximum is 30 days.

A liquidator using the Ethereum route would need to repay the Aave debt before receiving cash from the collateral. The calculation would include bridge capacity, trading costs, redemption liquidity and the cost of financing the waiting period.

Arc’s Core Hub had 143.45 million USDC supplied, 83.82 million USDC borrowed and 59.63 million USDC available in the Oct. 9 snapshot. The available balance is liquidity for Aave borrowing and does not represent guaranteed buyers for syrupUSDC or immediate cash for Maple redemptions.

The Arc review recommended increasing the Maple Spoke USDC draw cap from 23 million to 46 million USDC and the syrupUSDC supply cap from 25 million to 50 million shares. The draw cap was fully used, while 87.8% of the supply cap was used. The proposal listed a 92% collateral factor and a liquidation bonus capped at 4%.