Fluid Swaps $400M in aETH as Aave Loses Nearly $10B

Fluid processed 166,722 aETH, roughly $400 million, through a WETH redemption protocol over two days to let users exchange ETH collateral for wrapped staked-ETH after the April 18 KelpDAO incident drained Aave’s liquidity and froze withdrawals.

On April 18, Aave’s pools were emptied and withdrawals were temporarily halted, leaving lenders unable to access collateral and pushing stablecoin borrowing rates sharply higher. Total supplied assets on Aave fell from $45.8 billion to $35.7 billion, and total value locked declined from $26.3 billion to about $16.4 billion, a loss of about $9.94 billion. The wider decentralized finance market also contracted, with aggregate TVL moving from $99.5 billion to about $86.7 billion in the same period.

Fluid launched an on-chain WETH Redemption Protocol that used a lite vault holding wstETH as collateral against ETH debt on Aave to create inverted positions matching users trapped on the platform. That structure allowed users to hand over ETH collateral and receive wstETH or weETH without relying on Aave’s frozen pools. On-chain activity showed swap volumes surged between April 20 and 21; Fluid reported processing the 166,722 aETH total over two days.

After the initial rollout, Fluid expanded the protocol to Arbitrum and Base and implemented a queue-based matching system. The queue paired traders seeking to exit positions with lenders aiming to acquire different assets. Mechanics on Layer 2 networks were adjusted to account for more manual debt handling.

The Fluid team compared the mechanism to traditional credit instruments and wrote, “Products like credit default swaps exist for these kinds of situations, so Fluid expects DeFi to have its own equivalent.”

Not all capital that left Aave disappeared. On-chain data showed Spark’s TVL rose to $4.552 billion, an increase of about $825 million as liquidity moved to other lending platforms. Market activity also showed lenders borrowing against locked assets to reduce losses, which contributed to higher interest rates and further outflows.

Aave founder Stani Kulechov has maintained the protocol was not hacked or technically compromised during the incident. Aave launched its V4 upgrade on the Ethereum mainnet on March 30, introducing a new liquidity architecture and a collateral framework requiring bridged tokens to meet a multi-signature DVN threshold. The protocol has also experienced governance changes, including the departure of BGD Labs and the disbanding of its ACI governance committee.

Despite the outflows, Aave remains a leading lending protocol by core TVL base. The protocol generates about $560 million in annualized fees and retains institutional backers that joined in the weeks before the KelpDAO incident. Fluid’s redemption protocol provided an alternative liquidity pathway for users while Aave’s pools were unavailable.