Aave TVL Falls $15.1B in 3.5 Days; Spark Leads Gains

On April 22, on-chain analysts reported that, affected by the rsETH/KelpDAO event, Aave funds have continued to flow out. Within three and a half days, the total deposit amount fell from $48.5 billion to $30.7 billion. Over the same period, Morpho saw a modest outflow of $1.5 billion. The most notable contrast came from Spark: its SparkLend business TVL rose against the trend, from $1.9 billion to $3.2 billion.

Contrasting the three major platforms: Aave is bleeding while Spark benefits against the odds

（Source: Aave）

In this event, three mainstream DeFi lending platforms showed distinctly different trends:

Aave: Down from $48.5 billion to $30.7 billion, with net outflows of $15.1 billion in three and a half days (a drop of about 31%).

Morpho: Down from $11.7 billion to $10.2 billion, with net outflows of about $1.5 billion, with relatively limited impact.

Spark (SparkLend): Up from $1.9 billion to $3.2 billion, with net inflows of about $1.3 billion—the biggest beneficiary of the market turbulence.

Some institutional funds that withdrew from Aave were redirected to Spark, indicating that after the rsETH event, some market participants chose comparatively safer alternative platforms.

Aave’s bad-debt outlook: Defillama’s founder proposes two scenario analyses

Defillama founder @0xngmi provided two scenario analyses of how the recovery of Arbitrum’s $71 million ETH would affect Aave’s bad-debt scale:

Scenario One (loss socialized): If Arbitrum prioritizes support for the Aave market and socializes the loss, then each rsETH holder’s position would be reduced evenly by 18.5%. Aave’s bad debt would be about $216 million, requiring the use of the treasury and the Umbrella fund.

Scenario Two (loss borne by L2 holders): If the loss is borne only by L2 rsETH holders, then Aave’s bad debt on Arbitrum would fall from about $88 million to about $17 million, cutting it by roughly 80%, but it could trigger dissatisfaction and potential lawsuits.

Market sentiment stabilizes: AAVE bounces back from the low, and the DeFi industry calls for confronting the recovery

After Arbitrum’s Security Committee froze about 30,776 ETH (about $71 million) worth of KelpDAO-related addresses, Santiment data showed that Aave market sentiment no longer deteriorated to new lows. The AAVE token rebounded from the $80 low on April 20 to about $93.59, and the downtrend in TVL began to level off as well.

Dragonfly managing partner Haseeb Qureshi said, “AAVE may have to absorb some bad debt, but it has enough net value to repay it.” Defillama’s founder emphasized, “DeFi will be hit, but it won’t disappear,” and believes that by using the protocol treasury and adjustments, affected protocols like Aave can “fully recover.”

Frequently Asked Questions

Why can Spark grow against the tide while Aave is bleeding?

Spark benefited from this event mainly because it is viewed by some market participants as a relatively safe alternative platform, especially against the backdrop of Aave facing bad-debt risk. The shift of institutional capital also further attracted other wait-and-see capital to follow, creating a positive inflow effect.

How high could Aave’s bad debt ultimately reach?

Based on Defillama’s founder’s two scenario analyses, Aave’s bad-debt range is between $17 million and $341 million. The exact figure depends on how Arbitrum handles the seized ETH and how the rsETH losses are allocated. Aave DAO currently holds $181 million in assets and about $54 million in the WETH Umbrella fund as a buffer.

How does the DeFi industry assess the impact of this event on the overall ecosystem?

The mainstream view is that this event should be seen as a process for DeFi to “learn from failure.” Both Dragonfly and Defillama executives said that the protocol has sufficient capital and mechanisms to absorb losses. Arbitrum’s coordinated freezing action is viewed as a positive governance precedent, and overall optimism began to emerge within the community.