Aave WETH vaults reach 100% utilization after KelpDAO outflows

Aave’s WETH lending market reached 100% utilization after a wave of withdrawals linked to the KelpDAO exploit, leaving suppliers unable to withdraw wrapped ETH. On-chain data show roughly $5 billion of value moved on Ethereum during the event, and protocol monitors estimate up to $196 million in potential bad debt tied to loans collateralized with less-liquid rsETH.

Protocol and on-chain data indicate that several of Aave’s largest markets were fully borrowed, meaning deposited assets are currently all on loan and cannot be withdrawn by suppliers until borrowers return funds or positions are closed. Stablecoin markets including USDT and USDC also experienced heavy drawdowns as users moved funds during the outflow.

The peak outflow reduced Aave’s total value locked to about $17.5 billion from a recent level above $25 billion. Early protocol assessments point to borrowers who used rsETH, a stake-derived token with limited liquidity, to obtain WETH. If those loans cannot be recovered, the protocol could record bad debt in the range of the early estimate.

Activity on the network suggests some withdrawals were tied to exploit-related behavior: WETH was moved to execute liquidations and to obscure downstream fund flows. Aave’s maintainers are running debt checks and tracing funds across Layer 2s and other venues to quantify losses and identify at-risk loans.

Aave runs 215 lending markets and the platform’s average utilization across markets is about 37%, so the 100% readings are concentrated in a subset of markets, primarily WETH. Over the prior month, protocol liquidity had fallen about 25%, stablecoin liquidity was down roughly 35%, and borrowing activity declined about 10%.

Market indicators also moved: the AAVE token fell from a local high near $157 earlier in the quarter to about $92 following recent outflows. Protocol operators have flagged potential actions that could include using reserve funds or adjusting risk parameters, which would require governance approval.

For users, full utilization in a market means supply-side participants cannot withdraw until liquidity is returned by borrowers or through closed positions. Illiquid collateral such as rsETH increases the difficulty of covering loans, which is central to the ongoing reviews by protocol maintainers and governance participants.