Aave restricts $136 million tBTC market after Threshold halts redemptions

Aave restricted additional tBTC deposits and borrowing against the token after Threshold Network suspended tBTC minting and Bitcoin redemptions. Threshold halted the Bitcoin bridge for undisclosed security maintenance, prompting decentralized lending protocols to reduce exposure. An October 31 governance notice said Aave's guardian multisig imposed the restriction at 10:01 UTC. The market then held approximately 1,760 tBTC valued at $136.6 million, equivalent to roughly 42% of circulating tBTC.

Threshold's October 31 security update said bridge wallets contained approximately 4,320 BTC backing 4,185 tBTC in circulation. The reserves surpassed circulating supply by about 135 BTC. Threshold said tBTC retained full backing and no funds had been lost. Threshold also said investigators found no unauthorized minting. Threshold described the situation as contained and said bridge operations would resume following remediation. However, Threshold has neither identified the specific security problem nor announced a reopening date.

Existing tBTC can still move across Ethereum and layer-2 networks despite the suspension of new Bitcoin deposits, minting and redemption requests. Pending transactions will be processed once bridge operations restart. Threshold urged users to avoid sending Bitcoin to deposit addresses generated previously and to avoid resubmitting pending transactions. Threshold promised another security update within 24 hours after the October 31 announcement, or earlier if circumstances changed.

Aave risk service provider LlamaRisk recommended immediately freezing tBTC in Aave's Ethereum V3 Core market following the bridge suspension. The restriction prevents additional tBTC deposits and the use of tBTC to expand borrowing capacity. The freeze affects only the Ethereum Core tBTC reserve. Aave's tBTC markets on Base and Arbitrum were already frozen through earlier asset deprecation rounds. Existing users retain the ability to repay loans and withdraw eligible collateral. Liquidations continue under the risk parameters already in place. LlamaRisk said collateral positions and secondary-market liquidity would remain under review before LlamaRisk recommended restoring normal Aave operations. The token enables Bitcoin holders to use Bitcoin-backed collateral for decentralized finance loans.

Gauntlet's October 31 statement disclosed approximately 704,000 USDC of exposure through the Ethereum Morpho USDC Core vault to a market secured by tBTC collateral. Gauntlet added the market to an emergency exclusion list. Gauntlet withdrew approximately 65,000 USDC of available liquidity, leaving around 640,000 USDC supplied to the market. Gauntlet warned that suspended redemptions could impair tBTC secondary-market liquidity and lenders' ability to exit positions during liquidations.

Holders seeking native Bitcoin must find secondary-market buyers while Threshold's redemption mechanism is unavailable. A substantial loss of liquidity or a price discount relative to Bitcoin could complicate collateral liquidations, especially in lending markets with significant tBTC exposure.