Headline: KelpDAO hack triggers Aave liquidity scramble — $300M borrowed against USDT as users try to escape locked funds A sudden $300 million surge in borrowing on Aave over 24 hours is revealing a deeper liquidity crunch in stablecoin markets after the KelpDAO exploit, according to on-chain monitors. What happened - On April 18 an attacker manipulated KelpDAO’s bridge and released 116,500 rsETH — roughly 18% of its circulating supply — worth about $292 million. Those minted, unbacked rsETH tokens were immediately deposited as collateral across lending platforms, mostly Aave, to borrow real assets such as ETH/wETH. - The borrowed WETH appears to have been removed from the system; the rsETH left behind is effectively an unbacked claim and is valued near zero on many layer‑2 chains where bridged rsETH relied on an emptied mainnet lockbox, according to pseudonymous on‑chain analyst 0xyanshu. - Aave froze rsETH markets on V3 and V4 within hours. Founder Stani Kulechov said Aave’s contracts were not exploited — the attack originated outside the protocol — but the freeze only contained one problem and set off another. How the liquidity spiral unfolded - When the exploit hit, large holders quickly pulled billions from Aave’s pools. Analysts estimate over $6 billion exited the protocol within hours, pushing utilization on ETH lending markets to 100% — meaning there was no supply left to withdraw. - The strain spread to stablecoin pools. USDT and USDC utilization also hit 100% as liquidity dried up across markets. - With deposits effectively locked, some affected users took a desperate route: borrowing against their own USDT/USDC collateral to access liquidity elsewhere. Because Aave allows up to a 75% loan‑to‑value (LTV) on many assets, trapped depositors could extract up to three quarters of their position’s value — in many cases accepting steep losses to get any liquidity out. The $300M borrowing spike - Chaos Labs’ data shows roughly $300 million in new borrowing against USDT on Aave within the first day after the exploit. This increase is not a sign of fresh borrowing demand, but of depositors attempting to access funds they otherwise could not withdraw. - “We’re now seeing negative secondary effects of illiquidity in Aave stablecoin markets,” said monetsupply.eth, head of strategy at rival DeFi platform Spark. “Because users can’t withdraw due to 100% utilization, there has been a ~$300 million increase in borrowing with USDT collateral in just the past day since the rsETH exploit.” - Analyst Duo Nine and others report users accepting 10–25% losses by borrowing stablecoins (GHO/DAI/USDe) against locked USDT/USDC and exiting via other venues. This is not a normal trading play but a last‑resort liquidity extraction. Why rsETH mattered - rsETH is a re‑staking liquid staking token (LST) issued by KelpDAO. Liquid staking tokens represent staked ETH and are widely used as collateral in DeFi. Re‑staking reuses those staked assets to secure additional systems, stacking yield — but it also concentrates risk. - When a large tranche of rsETH was suddenly created and used to pull real assets out of lending markets, it generated bad debt for lenders and triggered the chain reaction that locked up stablecoins across Aave. Takeaway The episode underscores how a single external exploit — even without a protocol‑level vulnerability — can cascade through decentralized finance by draining liquidity and forcing extreme user behavior. “Decentralized” does not mean risk‑free: cross‑protocol dependencies, liquid staking and bridged tokens can create systemic exposure that shows up in unexpected ways. Read more AI-generated news on: undefined/news