Aave Faces Potential Losses of Up to $230 Million Following Kelp DAO Bridge Exploit

A recent exploit of the Kelp DAO and LayerZero bridge has put Aave at risk of losing up to $230 million. The incident occurred when an attacker manipulated the bridge mechanism, creating new tokens without backing and releasing 116,500 rsETH from the Ethereum-side bridge. The attacker then deposited 89,567 rsETH into Aave as collateral and borrowed approximately $190 million in ETH and related assets. Aave has taken steps to contain the risk, including freezing rsETH markets and halting new borrowing against the asset. The final impact depends on how Kelp DAO allocates the shortfall, with possible outcomes including a 15% depegging of rsETH, resulting in around $124 million in bad debt for Aave, or a more severe impact with bad debt rising to roughly $230 million if losses are isolated to Layer 2 networks.