Liquity Protocol, a decentralized borrowing platform on Ethereum, is facing turbulence after announcing potential issues with its V2 Stability Pools. The exact nature of the issue remains unclear, but the team has advised users to close their positions as a precaution, sparking widespread withdrawals.

Mass Withdrawals and TVL Decline

Following the announcement, over $17 million was pulled from Liquity v2 in just 24 hours. The Total Value Locked (TVL) dropped 18%, from $84.9 million to $69.6 million. Despite the turmoil, Liquity reassured users that core functions, including withdrawals and staking, remain operational.

Impact on Collateral Assets

The Liquity v2 Stability Pool relies on three key assets: Rocket Pool ETH (RETH), Wrapped Ether (WETH), and Wrapped Lido Staked Ether (WSTETH). Withdrawals saw $11.3 million leaving WSTETH, $4.5 million from WETH, and $1.2 million from RETH. Notably, Lido urged wstETH holders to exit Liquity’s pool, further exacerbating concerns.

What’s Next for Liquity?

In response, Liquity urged caution and warned users against potential scams exploiting the situation. The team emphasized that the protocol remains fully permissionless, meaning users must act responsibly when interacting with it. Official updates are being shared via Discord and X (Twitter).

Should You Buy, Hold, or Exit?

While Liquity’s fundamentals remain intact, security concerns create short-term uncertainty. If the issue is resolved swiftly, this dip could be a buying opportunity for those with high risk tolerance. However, if withdrawals continue, confidence in the protocol could weaken further, making an exit strategy more viable.

Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Always conduct your own research before making investment decisions.