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

Aave has witnessed a staggering $6.6 billion withdrawal, not due to a direct hack, but as a consequence of a structural risk exposure. The protocol's total value locked plummeted from $26.4 billion on April 18 to approximately $20 billion by Sunday morning, according to DefiLlama. The AAVE token saw a 16% decline to $92, while daily fees surged to $1.99 million amidst a wave of liquidations over the weekend. Depositors are fleeing Aave due to a hole it did not create. Attackers drained 116,500 rsETH from Kelp's bridge on Saturday, utilizing 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 $236 million. Aave, the largest lending protocol in DeFi, allows users to deposit crypto to earn yield, while others borrow against collateral. Kelp, a liquid restaking protocol, takes already-staked ether on Ethereum and routes it through EigenLayer, issuing a receipt token, rsETH, in exchange. This rsETH is traded and, crucially, used as collateral on Aave to borrow against. On Saturday, attackers exploited Kelp's cross-chain bridge, 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 paths to offset the deficit. The concentration of damage is attributed to Aave's loan book spanning 22 chains, with Ethereum holding $14.24 billion of the $17.82 billion in outstanding borrows. WETH accounts for 39.49% of all loans on the protocol, making it the dominant collateral-to-WETH pair affected by the attack. 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 its backing vanished on a bridge Aave does not control, ultimately affecting depositors. Liquid restaking tokens were whitelisted across major lending protocols due to their yield and representation of Ethereum's locked value. Risk models priced them as if they would hold 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 concerns about whether Umbrella is sufficient to cover the hole and whether stkAAVE holders backing the reserve will absorb the loss.