Aave Hit by $15B Outflows as Kelp DAO Exploit Sparks DeFi Liquidity Shock

Seems like Aave has suffered a sharp liquidity shock following KelpDAO’s US$293 million (AU$419 million) exploit, which triggered US$15.1 billion (AU$21.6 billion) in deposit outflows.

The withdrawals unfolded in just about 3 days after attackers stole 116,500 KelpDAO Restaked ETH tokens from a LayerZero-powered bridge and deposited the assets into Aave v3 as collateral to borrow wrapped Ether. 

If it sounds messy, that’s because it is—and few seem to fully understand how this massive house of cards holds together. What’s clear, however, is that the incident left Aave facing an estimated US$195 million (AU$279 million) in bad debt.

Moreover, DeFiLlama data showed Aave’s total value locked falling from roughly US$26.4 billion (AU$37.8 billion) to US$18.6 billion (AU$26.6 billion) by Sunday, while separate deposit figures from Aavescan showed a fall from US$48.5 billion (AU$69.4 billion) to US$30.7 billion (AU$43.9 billion). 

Some capital stayed inside DeFi, with SparkLend reported to have absorbed about US$1.3 billion (AU$1.9 billion) during the same period.

Read more: Tether Buys Into Bitcoin Lending Play With 8.2% Antalpha Stake

Liquidity Stress Spreads

Aave’s USDT and USDC lending pools reached 100% utilisation, leaving more than US$5.1 billion (AU$7.3 billion) in stablecoin liquidity unavailable for withdrawal until new deposits arrived or borrowers repaid loans. 

Aave froze rsETH markets on v3 and v4 after the exploit and kept WETH reserves frozen on Ethereum, Arbitrum, Base, Mantle and Linea while risk teams assessed exposure. The freeze was designed to stop new borrowing against the affected collateral and limit further contagion across pools.

Related: Strategy Blows Past 800K BTC With $2.5B Buy as Saylor Doubles Down