Aave Faces $6 Billion Deposit Exodus After Kelp Hack Exposes DeFi Lender's Structural Vulnerability

Aave has experienced a massive exodus of $6.6 billion in deposits, but this was not the result of a direct hack on the platform. The total value locked in the protocol plummeted from $26.4 billion on April 18 to approximately $20 billion by Sunday morning, according to DefiLlama. The AAVE token suffered a 16% decline to $92, while daily fees skyrocketed to $1.99 million as liquidations swept through the weekend. Depositors are fleeing because Aave has been left with a liability it did not create. When attackers drained 116,500 rsETH from Kelp's bridge on Saturday, they used the stolen tokens as collateral on Aave V3 to borrow wrapped ether against them. On-chain trackers estimate that the Aave-specific borrow amounts to roughly $196 million, with total positions across Aave, Compound, and Euler totaling around $236 million. Aave is the largest lending protocol in DeFi, where users deposit cryptocurrency to earn yields, and other users borrow against collateral. Kelp is a liquid restaking protocol that takes ether already staked on Ethereum and routes it through a separate yield-generating system called EigenLayer, issuing a receipt token, rsETH, in exchange. This rsETH is what users trade, and critically, what some users posted on Aave as collateral to borrow against. On Saturday, attackers tricked Kelp's cross-chain bridge into releasing 116,500 rsETH, worth approximately $292 million, to an address they controlled. They then deposited the stolen rsETH onto Aave V3 as collateral and borrowed wrapped ether against it. A bridge is a blockchain-based tool that facilitates the transfer of tokens between networks that may not originally support them. Aave initially stated that the Umbrella reserve would cover any deficit, but by Saturday afternoon, the language had softened to exploring paths to offset the deficit. The concentration of the damage is due to Aave's loan book spanning 22 chains, with Ethereum alone holding $14.24 billion of the $17.82 billion in outstanding borrows. WETH accounts for 39.49% of all loans on the protocol, meaning the attack targeted the exact collateral-to-WETH pair that dominates Aave's book. Stani Kulechov, Aave's founder, stated that the exploit was external and the protocol's contracts were not compromised. However, Aave accepted a liquid restaking token as collateral, and the backing for that token vanished on a bridge Aave does not control, leaving depositors vulnerable to losses. Liquid restaking tokens were whitelisted across every major lending protocol because they carried yield and represented a growing share of Ethereum's locked value. Risk models priced them as if they would hold peg under normal conditions, but none of them accounted for a scenario where the collateral becomes worthless due to a bridge exploit on a chain Aave does not control. Trader Altcoin Sherpa wrote on X, 'AAVE is the backbone of DeFi, with billions invested, and nearly every new DeFi infrastructure on new chains is a fork of it. When AAVE has contagion risk, it exposes the fragility of the entire system.' The token price is now reflecting the uncertainty over whether the Umbrella reserve is sufficient to cover the deficit and whether stkAAVE holders who back that reserve will absorb the loss.