The rsETH issue spread across DeFi but did not escalate into a wave of chain liquidations.
The protocols coordinated through DeFi United and raised over $300 million, equivalent to approximately 132,000 ETH, to support the market. As a result, the shortfall was gradually narrowed through further contributions, recovery from frozen funds, and liquidations.
This approach allows users to be compensated without having to bear the burden of forced allocation losses. However, relying on voluntary Capital also makes the response in similar situations more unpredictable if the level of coordination decreases.
AAVE Horizon recovers as borrowing demand returns.
As liquidation pressures from the rsETH incident eased, AAVE 's Horizon market began to recover. The market size is now close to $505 million, with $152.5 million already borrowed, indicating a return of liquidation demand.
Approximately $162.1 million remains available, creating room for new loans and providing the system with additional buffer should volatility return. This development suggests that Capital flows are shifting toward more regulated RWA markets, rather than leaving the system entirely.
Nevertheless, AAVE 's TVL still fell by approximately 45%, from $24.30 billion to $14.42 billion. This indicates that the recovery is uneven and insufficient to conclude that market sentiment has fully stabilized.
AAVE 's central Vai increases the spread of risk.
Horizon's recovery shows that demand is returning, but also reveals the extent to which the market relies on AAVE 's liquidation . With approximately $14.9 billion in TVL and $12 billion in active loans, the protocol is the cornerstone of the $41 billion lending market.
In such a structure, when a collateral asset comes under pressure, the impact can quickly spill over to related protocols. In the recent period, instead of a massive withdrawal of Capital , Capital flowed to safer places, and over $300 million in support was deployed to mitigate risk.
This mechanism helps ease market tension in the short term. But it also raises expectations that similar support levels will continue to emerge if new volatility occurs.
The current shortcoming is the lack of sufficient data to determine whether this coordinated Capital response model is sustainable in larger shocks, especially when liquidation is concentrated in a few key protocols.
Summary
The rsETH incident tested the resilience of DeFi, but the market didn't fall into a chain reaction of liquidations. AAVE Horizon shows that borrowing demand remains, while reliance on overall liquidation continues to be a point to watch as it both stabilizes the market and can amplify risk if volatility recurs.
