Aave's TVL has plummeted to about $17.95 billion, a drop of $8.45 billion in just 2 days.
The entire DeFi space has also lost around $13.21 billion, going from $99.50 billion down to $86.29 billion.
But the key point is that Aave's drop isn't just due to a red market; it's the result of a pretty dangerous chain reaction following the Kelp DAO / rsETH incident.
The root of the issue lies in the hack involving nearly $292–294 million related to Kelp DAO's rsETH.
According to reports, uncollateralized rsETH was brought to Aave as collateral to withdraw WETH, creating a bad debt risk for the protocol.
Aave's governance forum also confirmed that the Guardian had to urgently freeze rsETH and wrsETH on the affected deployments starting April 18.
Then came the familiar DeFi domino effect:
- As the market began to doubt risk management, big money pulled out first.
- Reports indicate that over $5.4 billion worth of ETH was withdrawn from Aave in this defensive wave.
- Justin Sun alone is said to have withdrawn around 65,584 ETH, equivalent to nearly $154 million.
One factor that worsened the sentiment quickly was that Aave's WETH pool was pushed to 100% utilization, meaning there was almost no liquidity left to manage normally.
On the governance forum, users complained that their ETH was stuck in the pool and needed a clearer handling plan from the protocol.
Aave clarified that rsETH on the Ethereum mainnet remains fully collateralized, but out of caution, they continue to freeze rsETH on Aave V3/V4 and the WETH reserves in related markets to limit risk while evaluating a handling strategy.
This helps to contain the spread, but at the same time, it gives users even more reason to pull their funds.
The entire DeFi space has also lost around $13.21 billion, going from $99.50 billion down to $86.29 billion.
But the key point is that Aave's drop isn't just due to a red market; it's the result of a pretty dangerous chain reaction following the Kelp DAO / rsETH incident.
The root of the issue lies in the hack involving nearly $292–294 million related to Kelp DAO's rsETH.
According to reports, uncollateralized rsETH was brought to Aave as collateral to withdraw WETH, creating a bad debt risk for the protocol.
Aave's governance forum also confirmed that the Guardian had to urgently freeze rsETH and wrsETH on the affected deployments starting April 18.
Then came the familiar DeFi domino effect:
- As the market began to doubt risk management, big money pulled out first.
- Reports indicate that over $5.4 billion worth of ETH was withdrawn from Aave in this defensive wave.
- Justin Sun alone is said to have withdrawn around 65,584 ETH, equivalent to nearly $154 million.
One factor that worsened the sentiment quickly was that Aave's WETH pool was pushed to 100% utilization, meaning there was almost no liquidity left to manage normally.
On the governance forum, users complained that their ETH was stuck in the pool and needed a clearer handling plan from the protocol.
Aave clarified that rsETH on the Ethereum mainnet remains fully collateralized, but out of caution, they continue to freeze rsETH on Aave V3/V4 and the WETH reserves in related markets to limit risk while evaluating a handling strategy.
This helps to contain the spread, but at the same time, it gives users even more reason to pull their funds.