- Aave deposits fell from $48.5B to $29.6B after the rsETH exploit led to outflows.
- USDC utilization stayed near 100% as high rates failed to bring enough fresh liquidity to Aave.
- While Aave and Morpho lost deposits, SparkLend gained inflows as capital shifted after the incident.
Aave’s total deposits have declined following the rsETH exploit, as ongoing outflows and high utilization levels continue to change lending conditions on the protocol. Data shows deposits fell from approximately $48.5 billion before the incident to about $30.7 billion, reflecting nearly one-third of capital exiting within a short period. In the immediate aftermath, $15.1 billion left the platform in just three and a half days, showing the scale and speed of withdrawals tied to the event.
The outflows coincided with a surge in borrowing activity after 116,500 rsETH, minted through an exploit, was deposited into Aave and used as collateral to borrow ETH. The attacker extracted 106,466 ETH, valued at around $250 million, contributing to liquidity stress across pools.
On Aave V3 Ethereum, USDC liquidity conditions increased. Utilization reached approximately 99.87%, with less than $3 million in available liquidity. Over a 24-hour period, both the supplied and borrowed amounts declined by about $60 million, indicating that repayments were matched by withdrawal requests rather than new deposits. As a result, the pool continued to contract rather than deleverage.
However, the interest rates remained high during this period. USDC and USDT deposit rates hovered near 13.4%, while borrowing rates approached 15%. Despite these levels, liquidity did not increase, indicating that higher rates were not sufficient to attract immediate inflows under current conditions.
Related: Aave Under Strain as KelpDAO Exploit Disrupts DeFi Lending Markets
Governance Proposal Targets Rate Adjustments
Following these conditions, a proposal was introduced on the Aave governance forum to modify USDC interest rate parameters in the V3 Ethereum core pool. The proposal outlines a two-step adjustment, beginning with an increase in the variable rate slope (Slope 2) from around 10% to 40%, alongside a reduction in optimal utilization from 92% to 87%. A later target calls for raising Slope 2 further to 50% and lowering utilization to 85%.
The proposal aims to restore price-based market clearing by increasing borrowing costs at high utilization levels, possibly encouraging new deposits. However, discussions within the governance forum indicate differing views on the approach, particularly regarding its impact on borrowers and overall market stability.
Diverging Trends Across Lending Platforms
While Aave recorded large outflows, other lending protocols showed mixed trends. Morpho’s deposits declined from $11.7 billion to $10.2 billion, marking a $1.5 billion reduction. In contrast, SparkLend experienced inflows, with total value locked increasing from $1.9 billion to $3.2 billion.
Data indicates that part of the capital withdrawn from Aave moved into Spark, including activity attributed to large holders. At the same time, demand shifts led to elevated ETH deposit rates on Spark, which briefly reached 130% before stabilizing near 18%.
Related: Aave Token Plunges 15% and TVL Drops by $7B After the rsETH Exploit
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