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 revolves around rsETH, a liquid restaking token issued by KelpDAO, which was exploited by an attacker who forged a transfer message, effectively creating new tokens without backing. This led to the release of 116,500 rsETH from the Ethereum-side bridge, with the attacker depositing 89,567 rsETH into Aave as collateral and borrowing roughly $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 now depends on how Kelp handles the shortfall, with potential 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 the potential for undercollateralized loans.