Aave under pressure as full utilization sparks risk debate

Aave is showing signs of a liquidity stress event after several core markets — notably WETH and some stablecoin pools — reached 100% utilization, meaning lenders cannot withdraw collateral. The protocol suffered its third-largest outflow (~$5B on Ethereum), driving total value locked down to about $17.5B from a recent peak above $25B. Early estimates put potential bad debt from KelpDAO/rsETH exposure near $196M. AAVE token price has fallen (from a local high of $157 over the quarter to a recent drop from $112 to $92). The episode highlights contagion risks for DeFi, concentrated liquidity in major protocols, and potential strain on lending markets if bad debt and rapid outflows persist.