ok nobody is really paying attention to how bad things are at aave rn.

all core markets at 100% utilization. $3B in USDT and $2B in USDC just sitting there stuck. as in you literally can't withdraw your money.

quick backstory so this makes sense. the rsETH exploit happened, aave ate the bad debt, and the second that news dropped whales like justin sun, mexc and a few others pulled billions out instantly. first ones out got their money. everyone else got trapped.

ETH market hit 100% utilization first. means you can't withdraw your ETH from aave. but the scarier part is the protocol can't liquidate ETH positions either if price drops. can't sell ETH = can't cover debt = more bad debt piling up.

ETH depositors still have one escape hatch tho. you can dump your aETHwETH on uniswap or an aggregator at a small loss. not great but it's something. USDT and USDC people don't even have that option.

aave lost over $6 billion in liquidity in the last 24 hours. USDT hit 100% utilization. then USDC. both markets locked. money just sitting there and panic is setting in.

some folks are getting creative, borrowing against their locked USDT/USDC and exiting through other markets at a 10-25% loss. basically borrow GHO or DAI or USDe against your stuck coins at 75-90% LTV and eat the spread to get out. imagine taking a 25% haircut just to access your own money.

but here's the thing. every time someone does this, MORE liquidity leaves aave. which pushes the next market to 100%. which locks the next group of people in. it's cascading across every market available.

crypto was flat today so liquidations weren't really a problem. but if the market moves tomorrow? billions in locked collateral that can't be liquidated = more bad debt for aave. and anyone stuck inside who needs their money to cover positions elsewhere is in serious trouble.

nobody wants to deposit either obviously. why would you put ETH or BTC or stables into a protocol where they might be locked indefinitely. any liquidity that does show up gets instantly inhaled by bots. i watched 250k on USDC disappear in seconds while writing this.

then there's the $200M+ in bad debt from the rsETH exploit. nobody has said who's actually paying for it yet. it's a hot potato. if you're still in aave you might end up eating part of that bill. on top of not being able to touch your money.

contagion risk is massive too. tons of protocols use aave for their yield mechanics. their users are stuck right now with zero involvement in any of this. they just deposited somewhere that deposited into aave. not their fault, still stuck.

october 10th was a CEX-driven crash. this is different. this is defi risk management failing at epic scale.

aave should never have onboarded rsETH as collateral at that size. the hacker walked away with $200M in ETH by posting fake collateral. that shouldn't be possible on a protocol this large.

rumors on X say rsETH was onboarded because of lobbying from a specific service provider with a conflict of interest. if that's true, governance is broken. but that's also not new for aave.

kelpDAO, the team that manages rsETH, now has to figure out who actually eats the $200M. aave users? L2 rsETH users? everyone gets a haircut?

stani and the aave team have been silent for 20+ hours since the initial rsETH freeze announcement. they've got a serious problem. trust is gone. TVL is bleeding. every core market is frozen.

maybe someone big steps in with liquidity before this gets worse. maybe.