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

Aave has witnessed a staggering $6.6 billion withdrawal, not due to a direct hack, but as a result of a devastating exploit on Kelp's bridge. 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 Aave due to a hole created by an external exploit. 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. As the largest lending protocol in DeFi, Aave enables 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 called rsETH. This rsETH is traded by users and, crucially, used as collateral on Aave to borrow against. 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, borrowing 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 due 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 accounts for 39.49% of all loans on the protocol, making the attack particularly damaging. Aave's founder, Stani Kulechov, emphasized that the exploit was external and the protocol's contracts were not compromised. However, Aave's acceptance of a liquid restaking token as collateral, which lost its backing due to a bridge exploit, has put depositors at risk. The whitelisting of liquid restaking tokens across major lending protocols was based on their yield and growing share of Ethereum's locked value, but risk models failed to account for a scenario where the collateral's value drops to zero due to a bridge exploit. As trader Altcoin Sherpa noted, AAVE is the backbone of DeFi, and its contagion risk exposes the fragility of the entire system. The current token price reflects concerns over whether the Umbrella reserve is sufficient to cover the hole and whether stkAAVE holders will absorb the loss.