Aave just froze roughly $136 million worth of Bitcoin on its platform after Threshold Network shut down all Bitcoin redemption operations. This sudden lockdown means hundreds of millions in tokenized Bitcoin (tBTC) can no longer be used as collateral for new loans or to boost borrowing power.
The situation started when Threshold Network announced it was suspending all tBTC minting and redemptions while conducting undisclosed security maintenance. Threshold said it still holds enough Bitcoin to fully back every tBTC in circulation - about 4,320 BTC backing 4,185 tBTC. But the company hasn't said when regular Bitcoin withdrawals will restart.
Aave's risk management team moved quickly after that announcement. At 10:01 UTC on October 31, Aave's guardian multisig implemented emergency restrictions that blocked new tBTC deposits and prevented users from increasing their borrowing power using the token. This immediate action stopped the flow of fresh liquidity into the Aave ecosystem while preserving existing positions.
The impact is significant. About $136 million worth of tBTC was sitting in Aave's Ethereum V3 Core market at the time of the freeze. That's roughly 42% of all tBTC tokens in circulation. For Bitcoin holders who had been using tBTC as a way to keep their Bitcoin exposure while earning yield, this sudden restriction cuts off their financing options.
Decentralized finance firm Gauntlet also took defensive action. The company disclosed it had about 704,000 USDC supplied to a lending market backed by tBTC collateral. Gauntlet placed the entire market on its emergency exclusion list and withdrew approximately 65,000 USDC from available liquidity.
The firm warned that the redemption suspension could hurt tBTC's secondary-market liquidity and make it harder for lenders to exit positions during liquidations.
For users who still have tBTC loans or positions on Aave, some activity remains possible. Borrowers can still make loan repayments and users can withdraw eligible collateral. Liquidations continue to operate under the same risk parameters as before. But new deposits and borrowing power expansion are now completely blocked.
Threshold Network told users not to send Bitcoin to previously generated deposit addresses or repeat pending transactions. The company said it would provide another security update within 24 hours of its October 31 announcement, or sooner if circumstances change.
No one knows exactly when this pause will end. Threshold hasn't disclosed what security issue prompted the suspension, nor has it given any timeline for when Bitcoin redemptions might restart. The project's statement confirmed that tBTC remains fully backed and no funds have been lost, but the specific maintenance work being done remains a mystery.