Aave Sees $16 Billion in Deposits Withdrawn Following Kelp Hack

Aave, a prominent lending protocol, has seen a staggering 35% drop in deposits following the recent Kelp hack, plummeting from $45.8 billion to $29.6 billion, as reported by on-chain analyst EmberCN.

The Total Value Locked (TVL) in Aave has also declined significantly, now at $15.1 billion, down from over $26 billion just a few days prior on April 18.

The Aave token has not escaped the downturn, with prices falling 13.8% in the past week, currently trading around $91.4.

Meanwhile, the hacker behind the Kelp incident continues to launder stolen funds. In just 36 hours, approximately 75,700 ETH (valued at $175 million) has been largely converted into Bitcoin using THORChain, generating substantial trading volume and fees for the platform.

According to EmberCN, the conversion activities have led to over $800 million in trading volume for THORChain, along with $910,000 in platform fees.

Mitigation Efforts

In response to the liquidity crisis, the Fluid project has introduced an aWETH redemption mechanism designed to stabilize the situation. Within 48 hours, this mechanism facilitated the processing of over 166,772 aETH (about $400 million), allowing users to convert their assets into wstETH or weETH.

This redemption occurred at a discount of approximately 2.2%, significantly better than the 23% discount seen on the secondary market for aWETH, according to Castle Labs.

Additionally, Circle's Chief Economist Gordon Liao has proposed increasing the interest rate on USDC within Aave v3, as the stablecoin market has been fully utilized for four days, with available liquidity dropping to below $3 million—a stark decline of $60 million in just one day.

Currently, the variable interest rate stands at around 14%, yet some borrowers remain unresponsive. Liao's proposal suggests a progressive rate structure that could see borrowing costs rise to as high as 53% at full utilization, aimed at incentivizing repayments and attracting new liquidity.

However, this proposal has faced criticism from community members, including Rhett Shipp, founder of Avant protocol, who argued that such measures would further drive capital away from Aave and USDC.

It is worth noting that on April 21, the Arbitrum security council took emergency actions to freeze 30,766 ETH (approximately $71.2 million) that had been stolen during the Kelp hack.