Borrowing costs for stablecoins such as USDT and USDC spiked from roughly 3.4% to 14% amid stressed liquidity and heightened risk aversion.

The crisis centers on a deep loss of trust in DeFi security and design, with any recovery hinging on improved security, diversified collateral, and resilient liquidity—not just price stabilization.

AAVE’s price action shows a bearish pattern, hovering around $90–$95 after a failed relief bounce, with potential downside toward $80 if support at $90 gives way.

An exploit in Kelp DAO allowed minting rsETH without ETH backing, creating tokens without collateral and enabling borrowing against them.

The incident sparked a system-wide liquidity shock as users and capital fled DeFi in search of safer exposure, not merely reacting to price moves.

Aave’s total value locked plunged from about $45 billion to $30 billion in three days, reflecting roughly $15 billion in withdrawals.

Market context indicates confidence loss is the primary driver of the downturn, and any recovery will depend on tangible improvements in protocol design and risk management, beyond price action.