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

Aave has witnessed a massive exodus of $6.6 billion in deposits, not due to a direct hack on the platform. 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 experienced a 16% decline to $92, while daily fees surged to $1.99 million as liquidations swept through the weekend. Depositors are fleeing because Aave is shouldering a burden it did not create. When attackers drained 116,500 rsETH from Kelp's bridge on Saturday, they utilized 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 approximately $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. That rsETH is what users trade and, crucially, what some users posted on Aave as collateral to borrow against. On Saturday, attackers deceived Kelp's cross-chain bridge into releasing 116,500 rsETH, worth around $292 million, to an address they controlled. 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 by Saturday afternoon, the language had shifted to exploring 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 accounts for 39.49% of all loans on the protocol, meaning the attack targeted the exact collateral-to-WETH pair that dominates Aave's book. Stani Kulechov, Aave's founder, asserted 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, resulting in depositors facing potential losses. Liquid restaking tokens were whitelisted across every major lending protocol due to their yield and growing share of Ethereum's locked value. Risk models priced them as if they would maintain their peg under normal conditions, but none accounted for a scenario where the collateral becomes worthless due to a bridge exploit on a chain Aave does not control. The token price is now attempting to determine whether Umbrella is sufficient to cover the deficit and whether stkAAVE holders who back that reserve will absorb the loss.