Aave has issued an important warning in the world of cryptocurrency. Aave’s founder, Stani.eth, recently said in a critique that the opportunities in DeFi through RWA also come with significant hidden risks.

Looking at the current financial environment, the situation is clear. Since 2022, interest rates have remained above 5%, putting heavy pressure on the private lending market. Many large funds are feeling pressure to withdraw. For example, some major investment funds saw declines of up to 50% in the past year, and some are facing withdrawal requests totaling up to $37 billion. On average, these funds are trading at a 20% discount.

Stani.eth outlined three possible scenarios that could be dangerous. If a single fund collapses, the system can handle it. But if multiple funds collapse at the same time, it could cause a deep downturn in the credit cycle. And if there is a complete collapse, systemic risk could arise. However, the total size of the private lending market is between 1.8 and 2 trillion dollars, so the failure of a single fund alone will not trigger a systemic crisis.

The real danger is that retail investors are putting their money into high-yield RWA without understanding how much risk they carry. The opportunity for RWA on crypto platforms like Aave is huge. But Stani.eth’s biggest concern is that major institutions on Wall Street could use DeFi as a channel to sell projects that they no longer trust.

But if RWA is designed properly, it can offer benefits that traditional finance cannot. Through Aave’s crypto smart contracts, it can automatically implement withdrawal windows, withdrawal limits, collateral ratios, and profit distribution. This can prevent sudden changes in withdrawal policies by traditional fund managers. Well-planned RWA projects can create a transparent and secure investment path between traditional markets and on-chain assets. DeFi should not just become a place to drain Wall Street’s excess liquidity.