AAVE Liquidity Crisis: Core Market Utilization Reaches 100%, Over $5 Billion in Stablecoins Locked
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Summary
BroadChain learned that at 14:16 on April 20, according to TechFlow, affected by the over $200 million bad debt triggered by the rsETH vulnerability under KelpDAO, AAVE is facing a severe liquidity crisis. The utilization rates of all core markets, including USDT and USDC, have reached 100%, resulting in over $3 billion in USDT and $2 billion in USDC deposits being unable to be withdrawn. The crisis began when large capital parties such as Justin Sun and MEXC rapidly withdrew funds, instantly draining the available liquidity in key markets like ETH, USDT, and USDC. Currently, the ETH market is also at 100% utilization, meaning the protocol cannot
BroadChain has learned that at 14:16 on April 20, according to TechFlow, due to the impact of a vulnerability in rsETH under KelpDAO, which has caused over $2 billion in bad debt, AAVE is facing a severe liquidity crisis. The utilization rates of all core markets, including USDT and USDC, have reached 100%, resulting in over $3 billion in USDT and $2 billion in USDC deposits being unable to be withdrawn. The crisis began when large capital providers such as Justin Sun and MEXC rapidly withdrew funds, instantly draining the available liquidity in key markets like ETH, USDT, and USDC. Currently, the ETH market is also at 100% utilization, meaning the protocol cannot handle potential ETH liquidations. If the price of ETH falls, it could generate more bad debt. USDT and USDC depositors lack channels similar to aETHwETH for discounted exits in the secondary market, leaving their funds completely locked. Amid spreading panic, some users are mortgaging their locked assets to borrow other assets like GHO and DAI at a loss of 10-25% in an attempt to exit, but this further depletes liquidity in other markets. While the current crypto market remains relatively stable and liquidation risks are temporarily manageable, if the market turns, AAVE will be unable to handle the liquidation of tens of billions of dollars in assets, and bad debt risks will continue to accumulate. This incident has exposed AAVE's failure in risk control when introducing rsETH as a collateral asset, and its governance structure has also been called into question. The AAVE team has remained silent for over 20 hours since the incident occurred, with the protocol's TVL rapidly declining and trust severely damaged.