Aave Faces $6 Billion Deposit Exodus Following Kelp Hack, Exposing DeFi Lender's Structural Vulnerabilities

Aave has witnessed a staggering $6.6 billion withdrawal, but not due to a direct hack on the platform. The protocol's total value locked plummeted from $26.4 billion on April 18 to nearly $20 billion by Sunday morning, according to DefiLlama. The AAVE token price dropped 16% to $92, while daily fees surged to $1.99 million as liquidations swept through the weekend. Depositors are fleeing because Aave is shouldering a burden it did not create. When attackers siphoned off 116,500 rsETH from Kelp's bridge on Saturday, they utilized 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 nearing $236 million. Aave, the largest lending protocol in DeFi, enables users to deposit crypto to earn yields, while others borrow against collateral. Kelp, a liquid restaking protocol, takes already-staked ether on Ethereum and channels it through a separate yield-generating system called EigenLayer, issuing a receipt token, rsETH, in exchange. Users trade and post rsETH as collateral to borrow against on Aave. On Saturday, attackers deceived 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 'explore paths to offset the deficit.' The concentration of damage on Aave stems from its loan book, which spans 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, making the attack particularly impactful on the collateral-to-WETH pair that dominates Aave's book. Stani Kulechov, Aave's founder, emphasized 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 on a bridge Aave does not control, leaving depositors vulnerable to losses. 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 token price now reflects the uncertainty surrounding whether Umbrella is sufficient to cover the resulting hole and whether stkAAVE holders backing that reserve will absorb the loss.