Following the approximately $292 million Kelp DAO exploit that compromised the cross-chain backing of rsETH, more than $10 billion has left Aave. However, this capital hasn’t converged into a single alternative but has dispersed across various platforms perceived as safer and simpler. As per DeFiLlama data, Aave’s total value locked (TVL) has decreased by around 40% due to impaired collateral causing market freezes, stalled liquidations, and enforced deleveraging, prompting users to withdraw or close positions.
Maker-linked Spark has been a notable beneficiary of this shift. Its TVL has increased by nearly 10%, as users gravitate towards infrastructure supported by Sky’s $6.5 billion in stablecoin reserves, preferring more controlled risk environments over the open-ended lending markets that are susceptible to complex collateral.
Meanwhile, entities like Lidoh, which provide liquid staking services, have maintained relative stability. This indicates a trend where users retain their ETH exposure but eliminate the associated risks of restaking, rehypothecation, and cross-chain bridges.
Additionally, there has been significant capital movement towards real-world asset protocols such as Centrifuge and Spiko, offering tokenized assets like T-bills and bonds. Simultaneously, a considerable portion of funds has transitioned into stablecoins, especially USDC, with users opting to step back from risk and wait on the sidelines instead of redeploying capital immediately.
Not all of Aave’s TVL reduction can be attributed to capital rotation; some is due to loans being repaid and positions unwound, which naturally decreases TVL without redirecting funds. Consequently, the market response has been fragmented, with capital flowing towards simpler, risk-controlled environments or even cash, indicating that confidence in shared collateral layers has diminished post-Kelp rather than simply relocating.