After the incident with KelpDAO on April 18, 2026, Aave founder Stani Kulechov repeatedly emphasized that the protocol was not hacked and was not compromised. But this did not save the situation. Over the next four days, almost $10 billion was withdrawn from Aave, and some liquidity flowed into other projects, including Fluid.
While Aave was facing problems, its pools were essentially emptied, withdrawals were halted, and lenders were stuck with unwanted collateral. Against this backdrop, Fluid quietly launched the WETH Redemption Protocol.
The idea turned out to be unexpectedly successful. In a simplified version, it worked like this: Fluid’s lite storage used wstETH as collateral for a loan in ETH on Aave. As a result, mirror positions were formed that directly matched the positions of users stuck in Aave.
This made it possible to bypass restrictions. Users could transfer their collateral in ETH and receive wstETH or weETH in return, without waiting for the Aave pools to be unlocked.
Fluid Seizes the Initiative
According to Castle Labs, in just two days, 166,722 aETH (about $400 million) passed through the Fluid redemption protocol. On-chain data from Dune showed a sharp spike in collateral swap volume for aETH from April 20 to 21. The figure then exceeded 84,000 ETH, and later Castle Labs released the full statistics in their post on X.
After this, Fluid scaled the solution to the Arbitrum and Base networks. There, they launched a system with a queue that allowed traders to carefully close risky positions and lenders to receive the assets they needed.
On L2 the mechanics changed slightly, as such networks require more manual debt management. But the core idea remained the same.
When the team was asked whether this was a one-time measure or the start of a new direction, they drew an analogy with traditional finance. There, instruments like credit default swaps have long existed for similar situations.
According to Fluid, DeFi should also have its own analogues of such solutions. And although no one planned the crisis itself, it best demonstrated how this can work in practice.
How Badly Was Aave Affected
The numbers after the incident speak for themselves. The total amount of funds in Aave fell from $45.8 billion to $35.7 billion. TVL dropped from $26.3 billion to about $16.4 billion, a decrease of about $9.94 billion.
Because the pools were essentially emptied, stablecoin loan rates surged. This only increased pressure on the protocol. Liquidity was lacking, withdrawals were limited, and users began taking out loans against their own locked assets just to reduce losses. As a result, rates continued to rise.
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The drop affected not only Aave. Total TVL in DeFi fell from $99.5 billion to about $86.7 billion. This is the lowest in more than a year and a 37% drop from $119 billion recorded at the start of 2026. The KelpDAO incident was not the only reason, but according to Castle Labs, it was the key factor. Aave was hit the hardest.
Some capital, however, did not disappear from the market. On-chain data from Lookonchain shows that Spark protocol’s TVL grew to $4.552 billion, up about $825 million amid the outflow from Aave. DefiLlama also recorded this trend, showing a sharp increase from April 19, while most other projects saw declines during this period.
Will Everything Be Fine With Aave
Aave launched V4 on the main Ethereum network on March 30. The update brought a new liquidity architecture and a redesigned collateral system. Now, bridge tokens require confirmation using the 3 of 5 DVN model.
There were only 11 days left from launch until the attack on KelpDAO. The project was already going through a difficult period. There were governance issues, the departure of BGD Labs and the disbanding of ACI.
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But despite all this, Aave still holds the highest TVL on the market, even after losing almost $10 billion. The protocol generates about $560 million in annual revenue and retains support from major players, including Grayscale and the Bank of Canada, who joined shortly before the incident.
Aave remains an industry leader, and key market participants expect the project to cope with the consequences.
