Decentralized lending platform Aave has effectively come to a standstill after all its core markets reached 100% utilization, rendering users unable to withdraw billions of dollars in cryptocurrency. According to DeFi Warhold, this means that roughly $5 billion in stablecoins, including USDT and USDC, are now locked, with the protocol lacking sufficient liquidity to facilitate payouts. The crisis unfolded on April 18, following a $292 million exploit of the Kelp DAO rsETH bridge, which led to a massive exodus of $6.6 billion from the protocol within 24 hours.
Aave founder Stani Kulechov stated that he had no useful comments to offer on the situation. DeFi Warhol explained that 100% utilization across all markets signifies a complete lack of liquidity, making it impossible to process liquidations and leaving $3 billion in USDT and $2 billion in USDC without a viable exit strategy. Natalie Newson, a senior blockchain security researcher at CertiK, emphasized that Aave is facing severe difficulties, as 100% utilization not only indicates a lack of liquidity but also disables the protocol's self-defense mechanisms.
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 may not be able to recover from without external assistance. Aave's risk framework had anticipated the scenario 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.