Decentralized lending giant Aave has effectively come to a standstill after its core markets reached 100% utilization, rendering users unable to withdraw billions of dollars in cryptocurrency. According to DeFi Warhold, this means that approximately $5 billion in stablecoins, including USDT and USDC, are now locked in the protocol, which lacks the necessary liquidity to facilitate payouts. The crisis unfolded on April 18, following a $292 million exploit of the Kelp DAO rsETH bridge, where an attacker utilized forged cross-chain messages to mint unbacked rsETH, subsequently depositing it into Aave as collateral to borrow nearly $200 million in WETH.
As news of the 'bad debt' spread, a bank-run scenario ensued, resulting in a total of $6.6 billion exiting the protocol within a 24-hour period. When approached for comment, Aave founder Stani Kulechov stated that he had 'nothing useful to say' on the matter.
DeFi Warhold explained that 100% utilization across all markets is equivalent to a complete halt, indicating a lack of liquidity for withdrawals and an inability to process liquidations, leaving $3 billion in USDT and $2 billion in USDC 'stuck with no clean exit.' The analyst warned that if market prices fluctuate, the bad debt will compound, and without a mechanism to cover it, the situation will worsen. Natalie Newson, a senior blockchain security researcher at CertiK, concurred that Aave is in serious trouble, emphasizing that 100% utilization signifies not only a lack of liquidity but also the failure of the protocol's self-defense systems. Newson noted that liquidations require liquidity to function, and without it, undercollateralized positions cannot be closed, leading to a accumulation of bad debt that the protocol cannot recover from without external assistance.
The researcher highlighted that Aave's issues stem from the KelpDAO exploit, which affected the entire DeFi system, demonstrating the interconnected risks within the ecosystem. Aave's risk framework had anticipated the possibility of 100% utilization, with former Risk Manager Alex Bertomeu-Gilles warning in 2020 that at this level, 'no liquidity is left' and the situation becomes 'problematic' for depositors seeking to withdraw their funds.
Technical analyst Duo Nine was the first to identify that Aave had reached 100% utilization, explaining that the crisis began when whales such as Justin Sun and MEXC exchange withdrew billions from AAVE following the rsETH exploit, initially causing the ETH market to hit 100% utilization before spreading to USDT and USDC pools.