Recently, Aave has been very busy, especially affected by the sudden security incident of Kelp DAO, causing significant losses in the current TVL.
Event Background:
💥Sudden Event: Kelp DAO Hack Triggered 'rsETH Linked Crisis'
Cause: Kelp DAO's liquidity restaking token rsETH was attacked due to a vulnerability in the LayerZero cross-chain bridge, resulting in a loss of approximately 116,000 rsETH (worth about $290 million).
Impact on Aave: The hacker deposited the stolen rsETH into Aave V3 as collateral and borrowed a large amount of WETH. This led to Aave facing a huge 'bad debt' risk.
Current Status: Aave's ETH utilization rate instantly shot up to 100%, making it difficult for regular users to withdraw ETH from the pool. Panic has led many users to withdraw funds, causing severe contraction in TVL. This storm has also caused a significant drop in the $AAVE token price.
AAVE V3 TVL
Although Aave has confirmed that its contracts are secure, and Aave's firewall mechanism (Umbrella module and DAO treasury) has been activated, to cover the 'bad debt' gap in the protocol, it may need to issue more tokens to make up for it. This puts direct dilution pressure on the long-term value for token holders.
The DeFi trust crisis caused by the event has also raised market doubts about LRT (restaking tokens) as collateral. The market will inevitably begin to reassess the risk weights of such complex derivative products.
💡For Aave, this is a 'brand reputation' defense battle. If it can successfully absorb this bad debt (about $200 million) through the Umbrella and DAO mechanisms without harming ordinary depositors, it will become the most resilient risk management case in DeFi history; conversely, if depositors ultimately have to share the losses, it may trigger a larger-scale bank run. For Aave, and even the entire Ethereum DeFi ecosystem, it will be a major test!