Until April 17, lending stablecoins on Aave yielded 2.32% APY, while the Federal Reserve's overnight rate was 3.64%. This implied that the market viewed an unregulated, open-source smart contract as a lower credit risk than the US Treasury. However, this mispricing ended within 48 hours. The market repriced DeFi credit risk, with Aave's stablecoin deposit APYs surging from 3-6% pre-exploit to 13.4% within two days.
This sudden shift was triggered by an attacker exploiting Kelp DAO's cross-chain bridge, resulting in a significant shortfall. The incident highlighted the lack of bankruptcy laws and recourse within DeFi protocols, making it essential for institutional allocators to reassess their exposure to DeFi. The market's adjustment serves as a reminder that DeFi is not risk-free and carries a premium over its regulated equivalents.