Aave Seeks to Restore Lending After KelpDAO Exploit

Aave is working to restore lending activity after the KelpDAO exploit in late April. New loan origination has nearly halted, with a single $32 million outlier on April 28. Total value locked fell from more than $25 billion before the incident to roughly $14 billion, and on-chain activity has slowed to near zero for most vaults as the protocol runs a campaign to reintroduce rsETH as accepted collateral.

Borrowing and lending contracted sharply in the days after the exploit. Analytics show almost no new loan events during the immediate aftermath, and outflows exceeded $15 billion on the busiest withdrawal days. Daily protocol fees have remained close to a baseline of about $2.8 million even as liquidity declined. Efforts to restore rsETH as collateral are under way, but most vaults remain inactive and many lenders have stayed on the sidelines.

Lending rates rose as supply tightened. USDC borrowing rates reached as high as 6.38%. During a freeze of rsETH, the protocol offered rates above 13% to attract liquidity but did not see a meaningful return of capital. Borrow rates briefly spiked above 14% APY before later correcting to about 7.12%. USDC vaults reported nearly 100% utilization, limiting the ability of new lenders to deploy funds and constraining liquidity for borrowers.

Stablecoins and wrapped ether showed the largest declines in lending activity. WETH remains the most widely borrowed asset with roughly $6.5 billion in outstanding loans, followed by about $3.7 billion in USDT and $2.9 billion in USDC. Despite these existing loan books, daily new loan events have largely stopped; on-chain analysts describe the pattern as a liquidity stress event rather than a sudden rise in demand for capital.

Some large holders moved assets to other platforms perceived as more secure after the exploit, and a portion of liquidity shifted to protocols such as Spark. The AAVE token traded lower over the past week, around $93.21. Protocol governance is voting on a temporary freeze of buybacks to conserve resources while conditions remain uncertain; the vote is expected to conclude within days.

In an X post, Aave founder Stani Kulechov wrote: “For me personally, the rsETH bridge incident was unfortunate as our team and community has put so much effort into securing the protocol and seeing the exploit happening outside of the protocol smart contracts, and affecting the markets is hard to watch even when the markets had (and still have) full backing like Mainnet Core.” He expressed confidence that the protocol can attract liquidity again based on its history of surviving multiple bear cycles.

Community members and contributors have focused on risk management and rebuilding collateral configurations to encourage lenders to redeploy funds. Several influencers signaled support and said they are open to returning to lending and yield strategies as conditions stabilize.