KelpDAO rsETH Hack Spurs Aave Liquidity Crunch
An April 18, 2026 exploit drained unbacked rsETH, which was deposited into Aave, creating $124M–$230M in estimated bad debt and a 33% TVL drop in 72 hours.
On April 18, 2026, an attacker drained unbacked rsETH from KelpDAO and deposited the tokens into Aave. An analysis of the event estimated Aave faced $124 million to $230 million in potential bad debt tied to the drained tokens, and Aave’s total value locked fell 33% within 72 hours.
The attacker exchanged the unbacked rsETH for WETH and stablecoins on Aave by exploiting a vulnerability in KelpDAO’s infrastructure. The analysis found that Aave’s aETHrsETH contract held about 83% of the circulating rsETH, concentrating exposure on the lending protocol.
The potential bad debt was linked to depegged rsETH used as collateral. Liquidity tightened as depositors withdrew funds while borrowing demand rose, reducing available liquidity and driving interest rates higher across Aave’s largest markets.
Borrow rates for USDT and USDC on Aave V3 rose from roughly 3.4% to about 14% as users borrowed stablecoins to exit positions. ETH borrowing costs climbed to near 8%—the highest level recorded since January 2024-before later easing to about 5%, above the pre-exploit level near 2%.
The yield-bearing stablecoin USDe, the fourth-largest asset on Aave with about $412 million in protocol deposits, saw total supply fall from $5.8 billion to $5.0 billion in three days, a decline of $800 million or 14%. The analysis described the outflow as one of the largest short-term redemption events in USDe’s history.
The analysis noted that negative funding rates on ETH and BTC perpetual futures reduced returns for delta-neutral USDe strategies and increased incentives for holders to redeem. It also highlighted that concentrated collateral positions in lending markets amplified the fallout beyond the initial exploit.
As of the analysis, borrowing rates and liquidity levels had not fully returned to pre-attack conditions.
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