Aave was pushed into a severe liquidity crunch after users pulled roughly $6.6 billion from the protocol in a short span, leaving the USDT and USDC pools effectively frozen. Around $5 billion tied to those two stablecoin markets became inaccessible for withdrawals.
Bridge exploit set off the chain reaction
The sequence began on April 18, when attackers exploited Kelp DAO’s rsETH bridge by creating fraudulent cross-chain messages. That allowed them to mint rsETH without proper backing, post those tokens as collateral on Aave, and borrow about $200 million in WETH. The report said the move gave the attackers an estimated $292 million on-chain advantage.
Once the incident spread across DeFi channels, users rushed to withdraw funds from Aave. Liquidity was drained across the protocol. The most visible damage appeared in the major stablecoin pools, where about $3 billion in USDT and $2 billion in USDC were left trapped with no clear exit route for depositors.
What 100% utilization means for Aave
DeFi analyst Warhol described the event as an extremely rare situation for Aave. At 100% utilization, all available liquidity in a market has been borrowed out, leaving nothing for routine withdrawals or fresh borrowing activity. Without new capital entering the system, the protocol cannot resume normal operation.
Warhol also warned that any market volatility could deepen the damage. With no effective mechanism to absorb bad debt and liquidations currently blocked, unsecured positions become harder to contain and the chance of additional losses rises.
Researchers say Aave was not directly hacked
Natalie Newson, a senior blockchain security researcher at CertiK, said the incident did not come from a direct compromise of Aave itself. In her view, the stress came from an exploit in a bridge protocol and then spread outward. She said internal defenses lose effectiveness when liquidity disappears, because undercollateralized positions cannot be closed and bad debt can build quickly.
The episode also exposed how tightly DeFi protocols are connected. A weakness in one part of the stack can move through collateral, lending, and liquidity channels much faster than users expect.
Large holders moved first as liquidity vanished
Aave founder Stani Kulechov told CoinDesk that he had no concrete comment to share at the time. The report also noted that in 2020, former risk manager Alex Bertomeu-Gilles had already outlined a scenario in which depositors could be unable to withdraw funds if utilization reached 100%, and that Aave had prepared risk frameworks around that possibility.
Analyst Duo Nine was cited as one of the first to spot the issue inside the system. The crisis was linked to heavy withdrawals by major players, including Justin Sun and crypto exchange MEXC. Withdrawals were first halted in the ETH market, then the USDT and USDC pools froze. Within hours, about $6 billion had been removed from the protocol. According to the report, most of the capital movement was driven by large investors, leaving retail participants in a weaker position during the liquidity squeeze.