Aave Bulls Fight to Hold the $90 Mark While 1.86B Remains Trapped in Core Markets

Aave is dealing with a high-stakes liquidity trap after the KelpDAO rsETH exploit on April 18 left the protocol with nearly $200M in bad debt. While the AAVE token is showing resilience by retesting the $90 support level, core lending markets remain pinned at near 100 percent utilization, effectively freezing $1.86B in user funds. To break the deadlock, Circle economist Gordon Liao has proposed a radical jump in USDC interest rates to 48 percent to attract fresh capital and allow trapped users to finally withdraw.

Key Takeaways

• Aave TVL plummeted from $26.4B to $18.6B as users rushed to exit following the KelpDAO bridge exploit.
• USDC and USDT markets reached 100% utilization, leaving stablecoin pools temporarily illiquid.
• Circle economist Gordon Liao has advocated for raising borrowing rates to 48% to force a market rebalance.
• Technical indicators show AAVE is struggling to stay above $90 on the 4H chart.
• The protocol's automatic risk tools failed to adjust because Chaos Labs exited as risk manager on April 6.

The rsETH Bad Debt Crisis and the KelpDAO Exploit

The crisis is centered on a vulnerability in KelpDAO’s rsETH bridging infrastructure that allowed a hacker to drain roughly $293M from the bridge. The attacker then used the compromised rsETH as collateral on Aave v3 to borrow wrapped ETH, which saddled the protocol with an estimated $196M in bad debt.

This triggered a massive confidence crisis. Within 24 hours, more than $6B left the protocol as sophisticated users rushed to pull funds. Today, the protocol is in a utilization lock. Because the current interest rate model is capped near 14 percent, it is not expensive enough to force borrowers to repay or high enough to attract new lenders. Consequently, $1.86B in stablecoins remains stuck and users are unable to withdraw their deposits.

AAVE Bulls Struggling to Stay Above $90 

From a technical perspective, AAVE is attempting to validate a structural shift. After the initial crash to $87, bulls stepped in and pushed the price back toward the $95 zone. However, the price seems to be facing rejection here at the moment and bulls must break above it to push the price higher.

The immediate goal for buyers is to hold the $90.72 level. If this level holds as a new floor, it confirms that the "panic bottom" is in. The first major hurdle sits at $97, where the 20-day moving average intersects with previous rejection zones. A decisive move above $100 would likely signal a shift in sentiment regardless of the ongoing bad debt concerns.

Circle Proposes a 48 Percent Shock to the System

Circle economist Gordon Liao’s proposal is the primary fundamental catalyst for a recovery. By raising the USDC rate to 48%, the protocol would essentially bribe liquidity back into the system. Liao argues that at these levels, capital will move into Aave within hours, providing the liquidity needed for trapped users to finally exit.

This emergency measure is necessary because Aave was left vulnerable when Chaos Labs officially departed as risk manager on April 6. The split followed a budget dispute and a misalignment on security protocols for the new Aave v4. Without a dedicated risk firm to maintain the "Slope 2" automatic rate tools, the protocol could not respond dynamically to the demand shock.

What to Expect Next

• The Bullish Case: A hold at $90 followed by a move past $97-$100 zone opens the path toward the $105 target where the 50-day moving average sits.
• The Bearish Case: If the $90.72 support fails, the price will likely retest the $87.15 demand zone where aggressive buyers last emerged.
• Key Catalyst: Monitoring the Arbitrum Security Council recovery efforts and the community feedback on the 48 percent rate hike.

Why is my money stuck on Aave right now?

Utilization in the USDC and USDT core markets hit 100 percent because so much capital was withdrawn after the hack. You cannot withdraw until loans are repaid or new liquidity enters the pools.

What is the 48% interest rate proposal?

Circle economist Gordon Liao suggested raising USDC rates to 48% to attract enough new deposits to allow trapped users to withdraw their funds.

Is AAVE still carrying bad debt?

Yes. Current estimates suggest the protocol is exposed to roughly $195M to $196M in bad debt due to the compromised rsETH collateral.