Aave Deposits Plunge by $16 Billion in Days Following Kelp Hack

Massive Liquidity Drain Hits Aave

The largest DeFi lending protocol Aave is experiencing a severe liquidity crisis in the aftermath of the Kelp exploit. On-chain analyst EmberCN highlighted that total deposits on the platform fell 35% — from $45.8 billion to $29.6 billion — representing a net outflow of $16.2 billion in just a few days.

"Total deposits on Aave have dropped below $30 billion. From $45.8 billion before the rsETH incident to $29.6 billion now — $16.2 billion in outflows." — EmberCN (@EmberCN), original post

The decline shows no signs of abating. At the time of writing, TVL stands at $15.1 billion, down from over $26 billion on April 18. Aave's native token is also under significant pressure, losing 13.8% over the past week and trading near $91.4.

Why This Matters

Aave is the dominant DeFi lending protocol, and losing a third of its deposits within days signals a profound confidence crisis across decentralized finance. Making matters worse, the Kelp hacker has nearly finished laundering the stolen funds: over 1.5 days, 75,700 ETH ($175 million) was converted to Bitcoin via THORChain.

"In 1.5 days, the KelpDAO hacker converted essentially all 75,700 ETH ($175M) to BTC. The primary route was THORChain, which received $800M in trading volume and $910,000 in platform fee revenue from this activity." — EmberCN (@EmberCN), original post

Fluid Deploys aWETH Redemption Protocol

In an effort to stabilize liquidity and stem the outflows from Aave, the Fluid project launched an aWETH redemption mechanism. Within 48 hours, 166,772 aETH (approximately $400 million) was processed through it, allowing users to convert frozen assets into wstETH or weETH.

"The aWETH Redemption Protocol is now live on Arbitrum and Base. After processing $400M+ in redemptions on Aave Ethereum, we're expanding to L2s. This time, we'll be opening up for all loopers to unwind while ETH lenders exit to LSTs." — Fluid (@0xfluid), original post

The tool is built on Fluid's Lite Vault infrastructure, which holds wstETH and weETH as collateral against ETH debt on Aave, enabling direct closure of offsetting positions. Redemptions were executed at roughly a 2.2% discount — far better than secondary market conditions, where aWETH was trading at discounts as steep as 23%, according to Castle Labs.

Circle Proposes Progressive USDC Rate

Circle's Chief Economist Gordon Liao put forward a proposal to raise USDC borrowing rates on Aave v3. The stablecoin pool on the platform has been fully utilized for four consecutive days, with available liquidity falling below $3 million after declining by $60 million in a single day.

"A proposal on AAVE USDC market and liquidity parameters from Circle's Chief Economist Gordon Liao" — Jeremy Allaire (@jerallaire), original post

The current variable borrowing rate is capped at approximately 14%, but this level has proven insufficient to clear the market. Around $300 million in new borrowings emerged on Aave following the Kelp hack, with some borrowers largely indifferent to the rate — 14% APR is a small price to pay for exiting a position. Meanwhile, liquidity providers are demanding higher premiums as pools run dry.

Liao proposed implementing a progressive rate curve: 37% at 95% utilization and 53% at 100%. The idea is to incentivize borrowers to repay debts and attract fresh liquidity into the pools.

The proposal drew sharp criticism from the community. Avant protocol founder Rhett Shipp argued that raising rates would only accelerate capital flight from both Aave and USDC.

"You need to fire your chief economist. This will accelerate capital flight from both Aave and USDC. If you want Morpho and USDT to win, this is a great idea." — Rhett Shipp (@RhettShipp), original post

Arbitrum's Emergency Response

On April 21, the Arbitrum Security Council invoked emergency powers to freeze 30,766 ETH (~$71.2 million) stolen from Kelp. While this represented one of the first damage-control measures taken, the bulk of the stolen funds had already been swapped through THORChain by the time the freeze was enacted.