In April 2026, roughly $200 million in bad debt appeared on Aave. The code worked as designed. No smart contracts were exploited. No governance was manipulated. The money was siphoned anyway. Unbacked rsETH from the KelpDAO exploit was deposited into Aave and used as collateral to borrow real liquidity. Understanding how that happens is one of the most important things anyone building or investing in DeFi needs to wrap their head around.First, What Is Bad Debt in DeFi?DeFi lending works on a ...