- Aave has seen more than $5.4 billion in ETH withdrawn after the Kelp DAO rsETH exploit raised fears of bad debt on the protocol.
- The wave of exits pushed Aave’s ETH utilization rate to 100%, leaving available liquidity effectively exhausted.
Aave is dealing with a sharp loss of confidence after the Kelp DAO rsETH exploit spilled into the lending market and triggered a rush for the exit.
According to Lookonchain, the attacker used rsETH as collateral to drain ETH from the protocol, leaving Aave exposed to bad debt concerns and setting off a broad whale withdrawal wave. In total, more than $5.4 billion in ETH is reported to have left the platform as users moved quickly to reduce risk.
Whale withdrawals drained liquidity at speed
The most visible move came from Justin Sun, who withdrew 65,584 ETH, worth roughly $154 million, from Aave. That withdrawal, on its own, was large enough to draw attention. But it was really part of a much wider pattern.
As larger holders pulled funds, the effect on Aave’s core ETH market became immediate. The protocol’s utilization rate hit 100%, meaning all available borrowable ETH had effectively been absorbed. By that point, the issue was no longer only about the exploit itself. It had become a liquidity event.
That distinction matters. In DeFi, a protocol can survive a single exploit more easily than it can survive a broad loss of user trust that empties out reserves faster than the system can stabilize.
The rsETH incident exposed a familiar DeFi weakness
What seems to have rattled the market most was the possibility that collateral tied to rsETH could not fully cover the ETH that had already been pulled out. That is where bad debt enters the discussion, and once it does, lenders tend to move before waiting for full clarity.
Aave’s WETH reserve, one of the protocol’s largest pools, now shows a market under strain. Reserve size remains enormous, but available liquidity has narrowed to almost nothing.
For Aave, the immediate challenge is restoring confidence in the ETH side of the market before panic turns into something more structural. The protocol still has scale, deep usage and a large collateral base. But when utilization maxes out and whales start leaving in size, scale can feel less like protection and more like the reason the shock travels so fast.
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