The market shock from the KelpDAO exploit has spilled into Aave’s stablecoin pools. Data from Chaos Labs shows that users borrowed roughly $300 million against their USDT deposits on Aave within the first 24 hours after the attack. The move does not point to rising appetite for leverage. It points to a liquidity squeeze, with users borrowing against their own deposits because they cannot easily withdraw funds from fully utilized pools.
According to the report, Aave’s stablecoin pools were running at 100% utilization after the incident. In that setup, depositors may still hold a claim on assets in the protocol, but access to immediate liquidity becomes constrained. Instead of exiting normally, some users appear to be taking loans at a cost just to obtain usable capital. The surge in borrowing is less a sign of healthy credit demand and more a sign of stress inside the lending market.
Aave’s rate model depends on available liquidity
Aave is a DeFi lending protocol where users deposit crypto assets into pools to earn yield, while borrowers draw from those same pools by posting collateral worth more than the loan. The system is designed to adjust through interest rates. Borrowing demand pushes rates higher, which makes new loans more expensive and is meant to attract additional deposits. Lower demand pulls rates down.
That design rests on a basic assumption: liquidity must remain available for depositors who want to withdraw and for borrowers who need to close positions. If that assumption fails, the rate model still exists on paper, but users face a different reality. Assets may be sitting in the pool, yet not readily accessible. That is the pressure now showing up in Aave’s stablecoin markets.
Pressure from the rsETH exploit reaches stablecoin exits
The article cites Spark strategy lead monetsupply.eth, who said Aave is now showing negative secondary effects from illiquidity in stablecoin markets. He said users have been unable to withdraw because of 100% utilization, leading to an increase of about $300 million in borrowing backed by USDT in the day following the rsETH exploit.
rsETH is a liquid restaking ether token issued by KelpDAO. The report argues that the link between a single exploit and blocked stablecoin exits on Aave comes down to one broken assumption: liquidity was expected to be there when users needed it. Once that stopped being true, borrowing became a workaround. Costly, but available.