Fluid shines as DeFi alternatives gain prominence in KelpDAO collateral damage

Since the KelpDAO incident on April 18, 2026, Aave founder Stani Kulechov has consistently made it clear that the protocol was not hacked or compromised in any way during the attack. Nonetheless, that did not stop Aave from losing nearly $10 billion in the next four days, and Fluid is among those picking up the slack.

As Aave was struggling with its pools being completely tapped out, withdrawals being frozen, and lenders stuck with collateral they didn’t want, Fluid launched a WETH Redemption Protocol without warning. 

The concept of the protocol was surprisingly great: Fluid’s lite vault held wstETH as collateral against ETH debt on Aave, thus creating inverted positions that matched directly against users stuck on Aave. 

As such, they could hand over their ETH collateral and get wstETH or weETH in return without needing Aave’s frozen pools to do anything.

Fluid’s time to shine

According to Castle Labs, Fluid processed 166,722 aETH (around $400 million) through the redemption protocol in just two days. Dune on-chain data had confirmed that the cumulative aETH collateral swap volume had skyrocketed between April 20 and 21, reaching over 84,000 ETH before the Castle Labs update revealed the complete information in their X newsletter. 

Fluid then expanded the protocol to Arbitrum and Base, opening a queue-based system that allowed aggressive traders to safely end their risky positions by matching them with lenders trying to gain different assets. 

The mechanics slightly changed for Layer 2 (as most new networks require more manual debt handling), but the main principle remained the same.

When asked if the protocol was a one-time fix or the start of something bigger, the Fluid team compared it to traditional finance. Products like credit default swaps exist for these kinds of situations, so Fluid expects DeFi to have its own equivalent. 

While the crisis wasn’t planned, it was still the most effective demonstration of that theory.

How much damage did Aave take?

The post-exploit figures tell it all. Aave’s total amount supplied fell from $45.8 billion to $35.7 billion. Its TVL also dropped from $26.3 billion to about $16.4 billion (a $9.94 billion loss). 

Because Aave’s pools were completely drained, stablecoin borrowing rates spiked as well. This created compounding damage for Aave. Because liquidity was depleted and withdrawals were frozen, lenders started borrowing against their own locked assets just to reduce their losses, which in turn pushed the interest rates even higher.

The total DeFi TVL also fell from $99.5 billion to roughly $86.7 billion, its lowest level in over a year and a 37% dip from the $119 billion recorded at the start of 2026. While the KelpDAO incident did not cause all of that, the Castle Labs’ data confirms it was the biggest contributor, with Aave being the biggest casualty.

Not all of the capital that left Aave disappeared, though. According to on-chain data tracked by Lookonchain, Spark’s TVL rose to $4.552 billion (an $825 million increase) while Aave bled. DefiLlama also confirmed the change, indicating a sharp TVL increase since April 19 as opposed to every other project’s chart in the same timeframe.

Will Aave be fine in the end?

Aave’s V4 launched on the Ethereum mainnet on March 30, boasting innovative liquidity architecture and a collateral framework that would require bridged tokens to prove a 3 out of 5 DVN minimum. 

That upgrade was eleven days away when the KelpDAO attack happened. Combined with its existing governance crisis (BGD Labs’ departure and ACI’s disbanding), Aave has evidently had a difficult quarter.

However, it still retains the highest TVL base despite losing $10 billion. It currently earns $560 million in annualized fees, and still has the institutional backing from Grayscale and the Bank of Canada that came in weeks before the exploit. 

Aave is still the industry leader, and stakeholders are backing the protocol to be fine.

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