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

Aave has witnessed a staggering $6.6 billion exodus, not due to a direct hack, but as a consequence of a vulnerability in its ecosystem. 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 suffered a 16% decline to $92, while daily fees surged to $1.99 million amidst a wave of liquidations over the weekend. Depositors are fleeing as Aave grapples with a liability it did not create. The crisis unfolded when 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 the Aave-specific borrow to be around $196 million, with total positions across Aave, Compound, and Euler totaling $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 channels it through a separate yield-generating system called EigenLayer, issuing a receipt token, rsETH, in exchange. This rsETH is what users trade and, crucially, what some users posted as collateral on Aave to borrow against. 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 is attributed to Aave's loan book, which spans 22 chains, with Ethereum alone holding $14.24 billion of the $17.82 billion in outstanding borrows. WETH constitutes 39.49% of all loans on the protocol, making the attacked collateral-to-WETH pair the dominant one on 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 that 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 representation of a growing share of Ethereum's locked value. Risk models priced them as if they would maintain 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 over whether the Umbrella reserve is sufficient to cover the hole and whether stkAAVE holders backing that reserve will absorb the loss.