Kelp DAO 400 million in bad debts, but Aave paid $12 billion

Photo by Sanqing, Foresight News

On 26 May, Kelp DAO transferred the last batch of 20,373.72 rsETHs to LayerZero OFT Adapter, Aave synchronized the declaration of rsETH and all affected markets. 37 days, 11.65 million rsETH all backfilled。

But it's just that rsETH is redoing 1:1 endorsement, which does not mean that Aave's books are all clean. 30,766 ETH, frozen by the Arbitrum Security Committee, is still pending before the Federal Court of the Southern District of New York. Aave lost the TVL and couldn't come back with rsETH。

THE BILL IS NOT JUST IN THE TVL COLUMN

According to DefiLlama, on 18 April, Aave TVL was $26,396 million; on 25 May, $14,181 million. One month later, more than $12 billion。

It's harder to handle. The Federal Court of the Southern District of New York will hold a hearing on the 30,766 ETH belongings frozen by the Arbitrum Security Committee on 5 June. Ave LLC and Gerstein Harrow had submitted additional briefs by 22 May, after the judge had amended the referral notice on 8 May to allow the transfer of funds, but the substantive judgement was still pending on 5 June。

Gerstein Harrow, representing the families of the victims of terrorism in Korea, held $877 million in unpaid sentences. This case, whether it's a win or a win, is a waste of Aave's brand。

DeFi Unied was able to come together because of the willingness of various parties: Stani Kulechov to pay 5000 ETH, Connsensys and Joseph Lubin to commit up to 30,000 ETH, Aave treasury to allocate up to 25,000 ETH and Mantle to provide up to 30,000 ETH credit lines and Lido, Ether.fi, etc。

Community mobilization is unprecedented, but Aave overdrafted this card, which can only be played once. The next upstream pollution incident does not necessarily result in a similar list。

For example, after the incident, Sun Sun withdrew approximately $174 million (including 65,854 ETH and a number of stable currencies) from Aave to Spark, accumulating over $1.3 billion in savings in Spark. The whales voted with their feet and the money had already been moved。

OPENNESS OF V4 IS BEING SLOWED DOWN BY GOVERNANCE

Aave has more than one V4, but V4 is the core。

V4 is already online on March 30th with the ITA host network, Hub-and-Spoke, with three initial Liquidity Hubs. Aave Labs promised "security-first growth" with a gradual increase in the deposit ceiling. The 8th of April broke $10 million in deposits, 9th of May passed $50 million, 26th of May, total deposits amounted to $86.13 million and active lending position was $2.777 million

This rhythm was a responsible design choice before rsETH, and then rsETH became a stress test. Aave, while bearing $200 million in bad debts on V3, slowly pushed the ceiling on V4。

And what's more difficult is that V4 also has to deal with its own internal consumption. Aave Labs submitted a report in February 2026 on revenue from products, service provider incentives, V4 growth engines, branding laws. Together, the strategy proposal requires a one-time vote by the representative on four different risk dimensions。

The founder of Aave Chan Initiative, Marc Zeller, publicly questioned the appropriateness of tying up large requests for funding and strategic approval. The governance dispute continued to ferment around V4, and each delay allowed the opponent to eat a little more。

V4 has the advantage of being open to Spoke design, so anyone can build Spoke and access Liquidity Hub as a credit line. This is why Babylon Labs chose to connect Trustless Bitcoin Vaults to V4 instead of another home. But the pace of open delivery depends on the ability of governance to keep pace。

Not just V4, Aave. Three wars

Aave V3 is still a cash cow. The annualized income exceeds $100 million, with 14.11 billion TVL objects on V3. The "Aave will win" proposal places V3 in the "stability maintenance" phase, with Stani publicly committing to no forced relocation and no deadline。

V4 will run in parallel with V3 for at least 24 to 36 months, which is an additional layer of additive, with an interstellar scene that V3 cannot connect to. Horizon is an independent V3 license fork, a specialized service RWA。

The three floors have different increments. V4 is a new scenario that the V3 risk structure cannot accommodate, and an additional task has been added to the rsETH. A reason for having moved to Morpho, Spark's funds back to Aave. Horizon is robbing traditional finance of RWA flows, and V3 and V4 are completely out of touch。

Horizon Market officially came online in August 2025 as an example of a permit V3 system deployed by Aave, which specifically used monetized national debt, corporate debt, money market funds as collateral to lend stable currencies such as USDC, GHO, RFUD。

Accumulated over $500 billion in net deposits as at 26 May, the target was $1 billion at the end of 2026, with BlackRock, Franklin Templeton, Circle, Ripple, VanEck。

This route and Morpho's vault management model are not in one direction. Morpho, through Steakhouse, Gauntlet and these third-party agencies, collect the flow of loans from retail agencies like Coinbase, and Aave, through Horizon, directly connects RWA to the asset managers of traditional finance。

The two routes are separate on the image of the agency's clients. Morpho serves as a financial technology company that uses chain lending as a tool, and Aave serves as an asset manager for the chain as a distribution site。

relocation of funds following the events of rsETH mainly affected the first group of clients. The second category of clients is more costly and less responsive. The compliance framework accumulated by Aave on Horizon, the KYC process and the asset access audit could not be replicated at short notice after the incident by Morpho。

This is the only incremental line Aave has not been directly hit by the rsETH event, but growth depends on the rhythm of traditional financial access to DeFi。

No second time, DeFi United

Aave remains the largest in the lending market, with $14.1 billion worth of TVL still nearly twice as much as Morpho, and many years of accumulated deployments in the short term。

However, the bill left by rsETH is not on the balance sheet, in the column where the institution defaults on the loan agreement. Spark TVL grew from 37.2 billion to 5.3 billion a month, and Morpho slowly climbed pre-deep levels after the 21st of April, and these figures did not automatically reverse the flow because of Aave ' s market recovery。

V4 on the isomer scene, plus Horizon on the agency RWA, decides if Aave can take back the lost share. But the former are stuck in governance, while the latter are stuck in traditional finance's own access rhythm. And both of these things, Aave, can only wait。

DeFi United is not a permanent establishment, but a one-off build-up。