Complete worth locked on decentralized lending protocol Aave dropped by almost $8 billion over the weekend after hackers behind the $293 million Kelp DAO exploit borrowed funds on Aave, leaving roughly $195 million in “dangerous debt” on the protocol and triggering withdrawals.
Data from DeFiLlama reveals that Aave’s TVL fell from about $26.4 billion to $18.6 billion by Sunday, dropping the highest spot as the most important DeFi protocol.
Aave v3’s lending swimming pools for USDt (USDT) and USDC (USDC) are actually at 100% utilization, that means that greater than $5.1 billion value of stablecoins can’t be withdrawn till new liquidity arrives or borrows are repaid.
Aave’s TVL fall reveals how quickly threat from a single safety incident can unfold all through the broader, interconnected DeFi lending market, doubtlessly resulting in a extreme liquidity disaster.
The incident started on Saturday when hackers stole 116,500 Kelp DAO Restaked ETH (rsETH) tokens value about $293 million from Kelp DAO’s LayerZero-powered bridge and used them as collateral on Aave v3 to borrow wrapped Ether (wETH).
Crypto analytics platform Lookonchain said the transfer created about $195 million in “dangerous debt” on Aave, which contributed to the Aave (GHOST) token tanking almost 20% from $112 on Saturday at 6:00 pm UTC to $89.5 about 25 hours later.
Lookonchain famous that among the largest crypto whales to withdraw funds from Aave have been the MEXC crypto trade and Abraxas Capital at $431 million and $392 million, respectively.
A number of crypto networks and protocols tied to rsETH or the LayerZero bridge have paused use of the bridge till the issue is resolved, together with DeFi platform Curve Finance, stablecoin issuer Athena and BitGo’s Wrapped Bitcoin (WBTC).
Aave has frozen a number of rsETH, wETH markets
Shortly after the Kelp DAO exploit, Aave mentioned it froze the rsETH markets on each Aave v3 and v4 to stop any suspicious borrowing and later stated that rsETH on Ethereum mainnet stays totally backed by underlying belongings.
WETH reserves additionally stay frozen on Ethereum, Arbitrum, Base, Mantle and Linea, Aave mentioned.
This incident marks the primary important stress check of Aave’s “Umbrella” safety mannequin, which was introduced in June 2025 to supply automated safety in opposition to protocol dangerous debt whereas enabling customers to earn rewards.
Associated: Aave DAO backs V4 mainnet plan in near-unanimous vote
Earlier this month, the Bank of Canada discovered that Aave averted dangerous debt in its v3 market through the use of overcollateralization, automated liquidations and different methods that shifted threat to debtors.
In feedback to Cointelegraph, Aave defended its liquidation-based mannequin, framing it as a core security mechanism that protects lenders whereas limiting draw back for debtors.
It comes as Aave parted methods with its longest-standing DeFi threat service supplier, Chaos Labs, on April 6, following disagreements over the route of Aave v4 and funds constraints.
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