Aave Faces $6 Billion Deposit Exodus After Kelp Hack Exposes DeFi Lending Risks

Aave has experienced a significant exodus of deposits, with $6.6 billion withdrawn, not due to a direct hack on the platform. The total value locked in the protocol dropped from $26.4 billion to nearly $20 billion, according to DefiLlama, as the AAVE token price fell 16% to $92 and daily fees surged to $1.99 million amidst a wave of liquidations over the weekend. Depositors are fleeing because Aave is now carrying a debt it did not create. The crisis began when attackers drained 116,500 rsETH from Kelp's bridge, which they then used as collateral on Aave V3 to borrow wrapped ether. On-chain data indicates that the Aave-specific borrow amounts to roughly $196 million, with total positions across Aave, Compound, and Euler totaling around $236 million. Aave, the largest lending protocol in DeFi, allows users to deposit cryptocurrency to earn interest, while others borrow against collateral. Kelp, a liquid restaking protocol, takes already-staked ether on Ethereum and routes it through EigenLayer, issuing an rsETH receipt token that users can trade and use as collateral. Attackers tricked Kelp's cross-chain bridge into releasing 116,500 rsETH, worth about $292 million, to a controlled address. They then deposited this stolen rsETH onto Aave V3 as collateral to borrow wrapped ether. Initially, Aave stated that the Umbrella reserve would cover any deficit, but later shifted to exploring paths to offset the deficit. The damage is concentrated because Aave's loan book, spanning 22 chains, has a significant portion on Ethereum, with $14.24 billion of the $17.82 billion in outstanding borrows. WETH accounts for 39.49% of all loans, making the attacked collateral-to-WETH pair a dominant part of Aave's book. Aave's founder, Stani Kulechov, confirmed that the exploit was external and did not compromise the protocol's contracts. However, Aave accepted a liquid restaking token as collateral, and the token's backing vanished due to a bridge exploit outside Aave's control. Depositors are at risk of losses either way. Liquid restaking tokens were widely accepted as collateral across major lending protocols due to their yield and growing share of Ethereum's locked value. Risk models assumed they would hold their peg under normal conditions but did not account for a scenario where the collateral's value drops to zero 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 resulting hole and whether stkAAVE holders backing that reserve will absorb the loss.