DeFi has had one of the most challenging weeks in its history. What began as a single exploit on April 19 turned into a system-wide liquidity shock that shook confidence across the ecosystem and raised questions that go far beyond the incident itself.
The event began in the Kelp DAO, where an attacker identified and exploited a critical vulnerability in the protocol’s security system. To understand what happened, it is worth understanding what rsETH is supposed to be. Under normal circumstances, rsETH is minted when a user deposits ETH as staking collateral – it works like a receipt, backed 1 to 1 by the underlying asset. The project is plain: deposit real ETH and receive a token representing it.
The attacker found a way to completely bypass this requirement. Exploiting a loophole in the system, they minted rsETH without depositing any ETH – creating tokens that looked legitimate but were unbacked.
These tokens were then deposited as collateral in Aave, one of the largest and most trusted DeFi lending protocols, and used to lend out real assets: real ETH and real stablecoins. The result was a potential bad debt of up to $230 million, covered by a protocol that had no role in its creation.
The exploit itself took many hours. The damage it has caused continues to deepen.
$15 billion left in three days. The numbers will tell the rest
The market reaction to the exploit was quick and clear. According to for XWIN Research Japan, Aave’s total locked value fell from approximately $45 billion to $30 billion in just three days, a 33% decline, representing $15 billion in deposits withdrawn by users who felt the risk was no longer acceptable. This rate of exit does not reflect tidy risk management. It reflects fear.
Stress appeared simultaneously throughout the system. Lending rates for USDT and USDC have increased from approximately 3.4% to 14% as demand for liquidity surges amid a dwindling supply of available capital.
Holders began to transfer AAVE tokens to exchanges at increased rates, confirming that they were exerting selling pressure noticeable in the price and not simply marking positions down. USDe supply fell 14% in the same three-day window, reflecting reduced demand and the continued withdrawal of capital from the broader DeFi ecosystem.
Taken together, these data describe something more sedate than a price correction. It describes a loss of trust — users and capital are moving away from DeFi not because prices have fallen, but because the event has raised questions about whether the protocols they trusted were properly designed to prevent exactly these kinds of outcomes.
XWIN Research Japan pinpoints the recovery challenge: the problem is not price volatility, but confidence. Greater protocol security, better security diversification, and a more resilient liquidity design are prerequisites, but none of them matter until users believe that the system has actually changed. In DeFi, trust is not a supple metric. That’s the whole foundation.
AAVE is struggling to stabilize as the downtrend structure remains intact
AAVE continues to trade within a clear bearish structure. The price is hovering near the $90-$95 area after failing to sustain its recent rebound. The daily chart shows a sustained sequence of lower highs and lower lows since behind schedule 2025. This confirms that the broader trend remains firmly down despite sporadic attempts at recovery.
The latest move highlights this weakness. AAVE briefly moved towards the $110-$115 area, testing the falling 50-day moving average, but was quickly rejected and sold back to the previous range. This rejection reinforces the role of vigorous resistance. Both the 50-day and 100-day moving averages are trending down, limiting growth momentum.
Maintaining volume adds context. The recent augment in selling volume during the decline back to $90 suggests vigorous distribution rather than passive downward drift. Buyers have oscillated around this level many times. Labeling it as short-term support but not continuing fundraising shows narrow confidence.
If $90 fails to hold, the structure opens the door to a deeper move towards the $80 region, which is likely to be the next significant demand zone. On the other hand, AAVE will need to reclaim $110 with strength to begin challenging the broader downtrend. Until then, the increases will be corrective rather than structural.
Featured image from ChatGPT, chart from TradingView.com
