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 lending protocol Aave at risk of losing up to $230 million. The incident involved an attacker manipulating the bridge mechanism to create new tokens without backing, resulting in 116,500 rsETH being released 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 outcome depends on how Kelp handles the shortfall, with estimated losses ranging from $124 million if spread across all rsETH holders to $230 million if isolated to Layer 2 networks. The exploit has raised concerns about the security of interconnected DeFi infrastructure and has led to a significant withdrawal of total value locked from Aave.