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

Aave has witnessed a massive exodus of $6.6 billion in deposits, but the protocol itself was not hacked. The total value locked in Aave dropped from $26.4 billion on April 18 to nearly $20 billion by Sunday morning, according to DefiLlama. The AAVE token price fell 16% to $92, while daily fees surged to $1.99 million due to widespread liquidations over the weekend. Depositors are fleeing because Aave is now carrying a significant debt that it did not create. Attackers drained 116,500 rsETH from Kelp's bridge on Saturday and used the stolen tokens as collateral on Aave V3 to borrow wrapped ether. On-chain trackers estimate that Aave's exposure is around $196 million, with total positions across Aave, Compound, and Euler reaching $236 million. Aave is the largest lending protocol in DeFi, allowing users to deposit cryptocurrency to earn interest and others to borrow against collateral. Kelp is a liquid restaking protocol that takes already-staked ether on Ethereum and routes it through a separate yield-generating system called EigenLayer, issuing a receipt token called rsETH. Users can trade and post rsETH as collateral on Aave to borrow against it. On Saturday, attackers tricked Kelp's cross-chain bridge into releasing 116,500 rsETH, worth approximately $292 million, to a controlled address. They then deposited the stolen rsETH onto Aave V3 as collateral and borrowed wrapped ether against it. Aave initially stated that the Umbrella reserve would cover any deficit but later softened its stance to exploring ways to offset the deficit. The concentration of Aave's loan book on Ethereum, with $14.24 billion of the $17.82 billion in outstanding borrows, explains why the damage is significant. WETH accounts for 39.49% of all loans on the protocol, making it the dominant collateral-to-WETH pair. Aave's founder, Stani Kulechov, 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 an exploit on a bridge Aave does not 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 maintain 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 AAVE token price is now reflecting the uncertainty surrounding whether the Umbrella reserve is sufficient to cover the deficit and whether stkAAVE holders will absorb the loss.