May 4, 2026 — Update
Stablecoin liquidity is restored. USDC, USDT, and USDe on Aave v3 Ethereum Core are off the 100% utilization peg. Stablecoin borrow rates are back in the 3-5% range (vs the ~14% ceiling they were pinned at last week). Withdrawals are clearing normally. Fresh supply from various sources along with organic borrower repayment was enough to break the deadlock.
Technical recovery plan published and beginning execution. On April 28, DeFi United published the formal recovery implementation. Two parallel tracks:
Tranched conversion of committed ETH into rsETH, deposited into the LayerZero adapter to refill the lockbox to its 1.07 ETH per rsETH ratio.
Controlled liquidation of the 8 attacker positions on Aave Ethereum Core and Arbitrum via a temporary, governance-approved rsETH oracle price adjustment. All Aave configuration changes are explicitly temporary and reverted on completion.
Total committed funding stands at ~132,650 ETH (~$303M), comfortably above the $124M-$230M bad debt range. Aave's smart contracts remain unchanged throughout.
Kiln status.
Vault contracts unaffected. Share price unaffected.
Stablecoin vault withdrawals on Aave v3 Ethereum Core are functioning normally again.
Monitoring
May 4, 2026 — Update
Stablecoin liquidity is restored. USDC, USDT, and USDe on Aave v3 Ethereum Core are off the 100% utilization peg. Stablecoin borrow rates are back in the 3-5% range (vs the ~14% ceiling they were pinned at last week). Withdrawals are clearing normally. Fresh supply from various sources along with organic borrower repayment was enough to break the deadlock.
Technical recovery plan published and beginning execution. On April 28, DeFi United published the formal recovery implementation. Two parallel tracks:
Tranched conversion of committed ETH into rsETH, deposited into the LayerZero adapter to refill the lockbox to its 1.07 ETH per rsETH ratio.
Controlled liquidation of the 8 attacker positions on Aave Ethereum Core and Arbitrum via a temporary, governance-approved rsETH oracle price adjustment. All Aave configuration changes are explicitly temporary and reverted on completion.
Total committed funding stands at ~132,650 ETH (~$303M), comfortably above the $124M-$230M bad debt range. Aave's smart contracts remain unchanged throughout.
Kiln status.
Vault contracts unaffected. Share price unaffected.
Stablecoin vault withdrawals on Aave v3 Ethereum Core are functioning normally again.
Identified
Due to latest developments on the KelpDao/Layer Zero incident, we're now unpausing deposits to Aave v3 vaults via Kiln DeFi.
Deposits are in the process of being re-enabled across integrators. Depending on the integrator’s processes and architecture, deposits may not be unpaused yet today.
Identified
Kiln status
Deposits remain paused on Aave V3 vaults via Kiln DeFi as a precaution in light of the current situation (which hasn't changed much).
We will continue to monitor and post the next update as soon as things evolve.
Overall
No change to the bad-debt picture since our April 20th update. The L2-isolated scenario is consolidating, ~$70M ETH has been recovered via the Arbitrum Security Council freeze, and a proposal to use the Aave DAO treasury to make WETH lenders whole (net of Umbrella) is now on the governance forum. Kiln vault contracts remain unaffected throughout.
Operational issue on Aave v3 Ethereum Core stablecoin markets:
USDC, USDT, and USDe on Core have been pinned at ~100% utilization for four days. This is not a solvency issue - every dollar supplied is still currently fully backed.
Kiln stablecoin vaults on Aave v3 Ethereum Core are subject to the same constraint as any other supplier: end-user withdrawals may fail or partial-fill until utilization drops below 100%. Vault share price is unaffected.
Expected resolution.
Circle filed an emergency governance proposal on April 22 to steepen the USDC interest rate model on Core, which should pull new supply in and force borrower repayment. If the risk steward acts on the interim parameters, we expect withdrawals to begin clearing within 24-48 hours, with full normalization over 5-7 days. The same adjustment may follow on Arbitrum, Base, Polygon, Avalanche, Optimism, and Linea.
Please get in touch with your Kiln representative for further information or any questions.
Identified
Deposits to Kiln DeFi Aave vaults are now paused on all chains.
Identified
TLDR: In light of the KelpDAO exploit, we are pausing all new deposits to Aave vaults as a precaution in case of contagion to non-WETH vaults. We will update this incident when this pause is in effect.
---
AAVE has communicated that the Aave Ethereum mainnet instance is likely to be unaffected by the non backed rsETH. At the moment this seems to the most likely path, though not yet finalized.
The implication: the rsETH bad-debt pressure shifts onto the non-Ethereum instances — namely Aave V3 on Arbitrum, Base, and Mantle.
What we’re doing
Pausing new deposits across all Aave V3 Vaults instances out of precaution, until the situation clears and the L2 loss-socialization path is defined. We will let you know when this is done
Monitoring utilization, available liquidity, and any governance signal on a rolling basis.
Caveat: This is rapidly evolving and subject to decisions by KelpDAO, the Aave DAO, the Aave service providers, and other foundations/teams in the space.
We are continuing to monitor and will update if the stance flips or if fresh information lands.