- Aave saw almost $8.88 billion being wiped out from TVL in 48 hours.
- Fake collateral from KelpDAO allowed more than $200 million borrowing, which caused panic exits and drained ETH.
- $AAVE is trading at a price less than $100 as of now.
Aave, a DeFi platform that is known for its lending protocol, is reeling from a massive liquidity crisis triggered by the KelpDAO rsETH exploit, with billions in TVL disappearing overnight and core markets frozen at 100% utilization.
rsETh Hack Sparks Panic Withdrawals
All of this started as attacked minted fake rsETH tokens, unbacked liquid restaking tokens (LRTs), and used them as collateral on Aave to borrow more than $200 million in real ETH. Aave quickly posted on social media platform X, “rsETH on Ethereum mainnet is fully backed.” but out of caution, froze rsETH across V3 and V4.
The platform also capped exposure and halted WETH reserves on Ethereum, Arbitrum, Base, Mantle and Linea. The team is “actively validating information and assessing potential resolutions.”
What started as a $292 million KelpDAO breach quickly snowballed. Whales like Justin Sun and MEXC exchange pulled billions in liquidity first, and this drained ETH, USDT and USDC markets.
Crypto influencer Duonine warned that all core markets are at 100% utilization, that includes $3 billion in USDT and $2 billion in USDC stuck and one cannot withdraw their money. ETH depositors cannot get out directly, though some sell aETH-wETH on Uniswap at a loss. USDT/USDC holders face worse: borrow against them at 75-90% via GHO/DAI/USDe, but cascading utilizations lock more markets.
TVL Plunges $8.88 Billion in 48 Hours
According to DeFiLlama, Aave’s TVL has also come down from $26.4 billion to $17.52 billion, which is a $8.88 billion drop in two days.
EmberCN noted $10.1 billion outflows from Aave alone, including $4.5 billion in stablecoins, pushing 13.4% APY rates sky-high as depositors flee. Bots snatch any fresh liquidity instantly, like $250,000 USDC vanishing in seconds.
This is not just a hack, it is a DeFi stress test that is exposing interconnected risks in restaking, bridges, and lending. Liquidations stall since markets cannot process ETH sales if prices crash, amplifying bad debt risks, currently $177M-$236M from rsETH, a “hot potato” for Aave stakers, governance, or users.
$AAVE Token Tumbles Amid Trust Erosion
$AAVE’s price has dropped significantly and is currently trading below the $100 mark. At press time, the price of the token stands at $92.39 with a dip of 0.2% in the last 24-hours as per CoinMarketCap. The price before this exploit was hovering around the $120 mark. The current price indicates the eroded confidence and trust within the platform and its token.
High utilization signals panic. Rumours swirl of governance conflicts in onboarding rsETH, despite its hundred of millions in collateral allowing the massive borrow.
Contagion looms large. Protocols that rely on Aave for yields are all stuck and this will lead to bad debt. Crypto influencer Duonine warned “If you didn’t remove your assets, you risk receiving at least part of that bill.” Flat markets spared immediate liquidations, but volatility could worsen it.
Governance and Recovery Paths Ahead
After the entire incident, what comes to mind is who pays for this loss? The options are Aave’s safety module (where stakers take a cut), a governance vote, or losses being shared with KelpDAO users and L2 platforms. Critics are calling the rsETH onboarding a “DeFi risk failure” pointing out how risky it is to stack multiple layers, staking, restaking, LRTs, and lending, just to earn yield.
Aave now needs to bring back liquidity quickly, possibly with big players adding funds, to stop the situation from getting any worse. People are leaving and stating that the risk is not worth the small return. As Aave works on the fixes, time is critical, with billions locked and users’ trust at stake.
Also Read: Polkadot Price Recovers as Hyperbridge Raises Exploit Loss to $2.5M
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