DeFi lending protocol Aave [AAVE] has been left exposed after the KelpDAO exploit. When it happened, attackers minted 116.5k unbacked rsETH, using it as collateral to borrow high-quality assets.
The attack left Aave with $200 million in bad debt. To absorb this, the protocol has partnered with major DeFi protocols and mobilized a coordinated recovery effort under the name of “DeFi United.”
Contagion risk means the risk can propagate across the DeFi ecosystem, necessitating a combined front to absorb losses and stabilize the system.
In the last 60 days, over $600 million has been lost to crypto hacks. As a result of the exploit, Aave’s USDC market has faced liquidity strain too. In fact, the USDC utilization approached 100%, leaving the market effectively locked.
Aave price trend remains bearish across higher timeframes
The swing structure on the 1-day timeframe was bearish at press time. The moving averages confirmed the downward trend, but there were interesting aspects to AAVE’s technical analysis.
The first was the reaction of AAVE prices from $86-$91 on Monday, 20 April.
At that time, after bouncing to test the 78.6% Fibonacci retracement at $116.45, it was expected that the altcoin would trend downward. It has not. Despite the chaos in the DeFi ecosystem, the price stubbornly stayed above the $90-demand zone.
The OBV’s resurgence in recent days compounded the confusion around AAVE. Has the downtrend stopped?
The story of an unexpected bullish resurgence for Aave in the short-term would be remarkable. However, based on the evidence at hand, the downtrend looks set to continue. In fact, on-chain metrics corroborated this belief drawn from the daily timeframe chart.
Crypto analyst Moreno DV observed on CryptoQuant Insights that the centralized exchange Binance saw an increasing amount of AAVE reserves. These inflows came at the same time as the Total Value Locked fell to the lowest levels since November 2024.
A month ago, when the token was trading near $130, Binance reserves were at 1.576 million. At press time, the price was down nearly 30%, while Binance reserves have increased 9.3% to 1.723 million tokens.
A spike in inflows acts as a proxy for intent, noted the analyst. The opposite of accumulation was underway. For the downtrend to stabilize, the selling pressure has to be absorbed in the coming days.
A move beyond $132 is needed to break this downtrend and signal a potential reversal.
Final Summary
- Falling TVL and rising exchange inflows both signaled a fall in trust in the protocol, at least in the short-term.
- Despite the bounce from the $90-demand zone, selling pressure and momentum could send AAVE to new local lows below $85.05.