Aave Faces $6 Billion Deposit Decline After Kelp Hack Exposes DeFi Lender's Structural Vulnerabilities

Aave witnessed a massive exodus of $6.6 billion in deposits, but it wasn't due to a direct hack on the platform. The total value locked in the protocol plummeted from $26.4 billion on April 18 to approximately $20 billion by Sunday morning, according to DefiLlama. The AAVE token's value dropped 16% to $92, while daily fees surged to $1.99 million as liquidations swept through the weekend. Depositors are fleeing because Aave has inherited a problem it didn't create. When attackers drained 116,500 rsETH from Kelp's bridge on Saturday, they 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 approximately $236 million. Aave is the largest lending protocol in DeFi, where users deposit cryptocurrency to earn interest and others borrow against collateral. Kelp is a liquid restaking protocol that 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 as collateral on Aave to borrow against. On Saturday, attackers tricked Kelp's cross-chain bridge into releasing 116,500 rsETH, worth around $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 by Saturday afternoon, the language had shifted to exploring paths to offset the deficit. The concentration of Aave's loan book on Ethereum, with $14.24 billion of the $17.82 billion in outstanding borrows, explains why the damage is so significant. 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. Aave's founder, Stani Kulechov, stated 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 to bear the loss. Liquid restaking tokens were whitelisted across major lending protocols because they carried yield and represented a growing share of Ethereum's locked value. Risk models priced them as if they would hold their value 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 is now attempting to determine whether the Umbrella reserve is sufficient to cover the resulting hole and whether stkAAVE holders who back that reserve will absorb the loss.