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CoinDesk1 min read
AAVE Price Plummets By 26%: $9 Billion Net Outflows Traced To Kelp DAO Hack
TL;DR
AAVE's price dropped by 26% following a $292 million hack linked to Kelp DAO, severely impacting DeFi lending. The incident has caused significant net outflows and bad debt for Aave, totaling $280 million.
Key points
- AAVE price fell by 26%
- Kelp DAO hack involved $292 million theft
- Aave facing $280 million in bad debt
Mentioned in this story
Kelp DAO
rsETHWETH
A $292 million hack tied to restaking protocol Kelp DAO has rippled through decentralized finance (DeFi) lending and market confidence far beyond the original incident, with Aave emerging as one of the hardest-hit examples.
Over the weekend, Aave’s native token (AAVE) fell by about 26%, while the protocol also saw a sharp decline in total value locked (TVL) and continued outflows that intensified the downturn.
Kelp DAO Hack Sparks Aave Crisis
The chain of events began with the attacker draining roughly 116,500 rsETH—valued at about $292 million—from Kelp DAO’s LayerZero bridge. The stolen staking tokens were then used as collateral on Aave V3, enabling the attacker to borrow approximately $236 million in WETH.
Because the rsETH later became effectively unbacked, the collateral underpinning those positions is not liquidatable, leaving the borrowed funds stranded within the lending system. As a result, Aave is now facing a $280 million in bad debt that it cannot directly recover.
The impact on users and depositors was swift. With Aave’s ETH pool reaching 100% utilization, the protocol essentially has almost no available ETH left for withdrawals. In practical terms, that means users looking to exit quickly may already be confronting liquidity limits at the pool level.
As crypto portfolio manager Pratik Kala put it, the fear wasn’t about losses that Aave created itself, but about the protocol carrying a gap it did not make—prompting withdrawals driven by uncertainty. Kala likened the behavior to a bank run, summarizing the dynamic as “withdraw first, ask questions later.”
Since Saturday, when the heist news first emerged, Aave has recorded around $9 billion in net outflows. Total value locked on the platform fell by more than a third, dropping to about $17.5 billion.
The damage was not confined to Aave. DefiLlama data indicate that across all decentralized lending protocols, TVL fell by roughly $13 billion within 48 hours.
Price 86% Below All-Time Highs
As markets digested the fallout, Aave’s token performance also reflected the heightened stress. On Monday, AAVE was down about 26% from a one-month high of $118 recorded last Friday, after the broader crypto rally earlier last week.
Q&A
What caused the AAVE price drop?
The AAVE price drop was caused by a $292 million hack related to Kelp DAO, which affected market confidence and led to significant outflows.
How much bad debt is Aave facing after the Kelp DAO hack?
Aave is facing approximately $280 million in bad debt due to the hack, which left borrowed funds stranded within the lending system.
What happened during the Kelp DAO hack?
During the Kelp DAO hack, an attacker drained around 116,500 rsETH, valued at about $292 million, and used it as collateral on Aave, leading to substantial losses.
