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

Aave has witnessed a staggering $6.6 billion withdrawal, but the cause is not a direct hack on Aave itself. The protocol's total value locked has plummeted from $26.4 billion on April 18 to nearly $20 billion by Sunday morning, according to DefiLlama. The AAVE token has fallen 16% to $92, with daily fees surging to $1.99 million due to widespread liquidations over the weekend. Depositors are fleeing because Aave is now carrying a deficit 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. On-chain trackers estimate the Aave-specific borrow to be around $196 million, with total positions across Aave, Compound, and Euler reaching approximately $236 million. Aave is the largest lending protocol in DeFi, where users deposit cryptocurrency to earn interest and others borrow against collateral. Kelp is a liquid restaking protocol that takes already-staked ether on Ethereum and channels it through a separate yield-generating system called EigenLayer, issuing a receipt token, rsETH, in exchange. That rsETH is what users trade and, critically, what some users posted as collateral on Aave to borrow against. On Saturday, attackers tricked Kelp's cross-chain bridge into releasing 116,500 rsETH, worth about $292 million, to a controlled address. 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 enables token transfers between networks that may not originally support them. Initially, Aave stated that the Umbrella reserve would cover any deficit, but by Saturday afternoon, the language had shifted to exploring paths to offset the deficit. The concentration of Aave's loan book on Ethereum explains why the damage is significant. Aave's loan book spans 22 chains, but Ethereum alone holds $14.24 billion of the $17.82 billion in outstanding borrows, with WETH accounting for 39.49% of all loans on the protocol. 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 token's backing vanished due to a bridge exploit outside of Aave's control. Depositors are at risk of losing their funds either way. Liquid restaking tokens were whitelisted across major lending protocols due to their yield and growing share of Ethereum's locked value. Risk models priced them as if they would hold their peg under normal conditions, but none accounted for a scenario where the collateral becomes worthless due to a bridge exploit on an unrelated chain. The token price is now reflecting concerns about whether the Umbrella reserve is sufficient to cover the deficit and whether stkAAVE holders who back that reserve will absorb the loss.