Aave Faces Liquidity Crunch After $292M rsETH Exploit Drains ETH Pool

TLDR:

• A $292M rsETH exploit enabled massive borrowing on Aave, leaving the protocol with unbacked collateral exposure.
• Aave’s ETH pool reached full utilization, restricting withdrawals as panic-driven outflows exceeded $5.4 billion.
• Technical indicators show AAVE weakening after rejection near $120, with momentum still favoring downside pressure.
• Critical support near $90 remains under watch as markets assess stability following one of 2026’s largest DeFi events.

Aave’s lending markets faced acute stress after a large exploit tied to Kelp DAO triggered a liquidity crunch. The incident drained hundreds of millions in assets and pushed Aave’s ETH pool to full utilization, limiting withdrawals across the protocol.

Liquidity Crunch Follows Kelp DAO Exploit

A sudden exploit involving Kelp DAO’s rsETH token triggered widespread concern across decentralized finance markets.

The attacker reportedly drained 116,500 rsETH, valued at about $292 million, from a LayerZero bridge. The stolen assets were then deployed in a strategy that strained Aave’s liquidity.

According to Coin Bureau, the attacker deposited the compromised rsETH as collateral on Aave V3. This move allowed the borrowing of nearly $236 million in wrapped ETH.

However, the rsETH backing those positions is now considered invalid, leaving the loans without proper collateral support.

As a result, Aave is facing an estimated $280 million in unrecoverable debt. The protocol’s ETH pool reached 100% utilization, meaning nearly all available liquidity has been borrowed. Users attempting to withdraw ETH encountered delays or were unable to exit positions.

Market reaction was swift, with large-scale withdrawals reported across the platform. Data suggests over $5.4 billion in ETH outflows occurred خلال the panic phase. High-profile withdrawals added to the pressure, including a reported 65,584 ETH withdrawal by Justin Sun.

This situation marks a major stress event for Aave’s risk management systems. It also serves as a real-time test for its Umbrella safety module, which is designed to handle extreme conditions. The unfolding events continue to draw attention across the crypto sector.

AAVE Price Faces Pressure After Failed Rally

Market data shows that AAVE experienced a sharp rejection after attempting a breakout toward the $115–$120 range. The price has since retreated to around $93.90 on the 4-hour chart. Despite a modest recovery within the session, broader momentum remains weak.

Earlier price action reflected a steady decline from the $120 region toward $90 levels. This phase was followed by a period of sideways consolidation between $92 and $102. The recent rally attempt failed to hold, leading to renewed selling pressure.

Technical indicators show a bearish short-term structure. The Relative Strength Index is currently at 34.55, approaching oversold territory but not fully there. Its position below the moving average suggests continued downward momentum.

At the same time, the MACD indicator remains in negative territory. The widening histogram signals sustained selling activity, with no clear crossover indicating a reversal yet. This aligns with the broader price rejection seen on the chart.

Key support is now concentrated around the $90 level, with $89.50 acting as a critical breakdown point. If this zone fails, the next downside targets could fall between $85 and $80. On the upside, resistance remains firm near $100 and higher around $110.

Traders are closely monitoring whether the price can stabilize above the current support levels. A rebound would require improving momentum signals and renewed buying activity. Until then, the market structure continues to reflect caution following the recent exploit.

The post Aave Faces Liquidity Crunch After $292M rsETH Exploit Drains ETH Pool appeared first on Blockonomi.

Source: https://blockonomi.com/aave-faces-liquidity-crunch-after-292m-rseth-exploit-drains-eth-pool/