Morpho absorbs $8B from AAVE amid Kelp exploit without triggering bank run

Morpho’s fixed-rate positions absorbed $8 billion from Aave amid the Kelp exploit, while the Polymarket contract for Ethereum reaching $10,000 by December 31, 2026, holds at 4% YES.

The exploit involved a $292 million attack on Aave via the LayerZero bridge, causing market freezes across several DeFi platforms. Morpho’s fixed-rate PT positions avoided panic and absorbed $8 billion without triggering a bank run. The sub-market odds for Ethereum hitting $10,000 by year-end sit at 4% YES, unchanged from a week ago.

With 252 days remaining, the term structure for Ethereum price targets shows little optimism. All sub-markets for December 31 are pegged at 4% YES. Liquidity is thin: just $108 in actual USDC traded daily, meaning $1,057 is enough to shift the odds by 5 percentage points. This is a fragile market where minor orders can move prices significantly.

The market held steady through the exploit, showing moderate stress but no systemic collapse. Morpho and Pendle’s fixed-rate structures absorbed the shock without cascading liquidations. A YES share at 4¢ pays $1 if Ethereum hits $10,000 by year-end, a 25x return, which prices in deep skepticism about a major recovery this year.

Watch for Ethereum Foundation announcements and any new LayerZero bridge security measures. A significant DeFi recovery or new institutional capital flows could move these odds.

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