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Aave is dealing with the aftermath of a DeFi exploit, but the broader market damage came through a liquidation cascade that wiped out leveraged positions and pushed AAVE into a weaker demand area. With support under pressure and traders reloading positions, the outlook remains unstable.
The trigger was an exploit tied to rsETH collateral (linked to KelpDAO), exposing a structural weakness rather than a direct flaw in Aave itself. Attackers used rsETH within Aave lending markets to borrow large amounts of ETH. When those positions became unstable, the protocol faced bad debt exposure.
The rsETH markets on Aave V3 and Aave V4 have been frozen. Aave's contracts have not been exploited and this is an exploit related to rsETH.
The freeze follows an exploit of the Kelp DAO rsETH bridge. Freezing the rsETH markets prevents new deposits and borrowing against rsETH…
In response, Aave froze rsETH markets across Aave V3 (and related deployments, including upcoming V4 considerations) to prevent further borrowing and limit risk spread. Liquidity stress then intensified as users withdrew funds, raising utilization rates and contributing to forced liquidations. Together, exploit-driven stress, defensive protocol action, and user exits accelerated the downside move in AAVE.
The exploit did not only spark selling—it forced it. As liquidity tightened and prices fell, leveraged positions were pushed into liquidation. Each forced exit increased selling pressure, creating a cascade effect that further weighed on AAVE.
AAVE is testing a demand zone near $88–$92, a level that has seen multiple reactions. The token also failed to reclaim the $95–$100 range, suggesting buyers have not regained control.
Near-term scenarios described in the market read-through are:
With the liquidation phase underway, Open Interest (OI) declined during the selloff, but it has started to rise again. However, price has not shown a strong recovery alongside the OI increase.
This combination matters because rising OI while price remains weak can indicate new positions entering without clear directional control. In many cases, that dynamic is associated with bearish continuation, as fresh positioning builds into weakness. It can also raise the risk of sudden volatility if those positions become vulnerable to squeezes.
The initial trigger is known and the liquidation phase has largely played out. The market is now in a more uncertain stage where positioning and reactions at key levels will determine whether AAVE stabilizes or moves lower again. For now, pressure has not fully eased.
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