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

Aave has experienced 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 dropped from $26.4 billion on April 18 to approximately $20 billion by Sunday morning, according to DefiLlama. The AAVE token price fell 16% 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 didn't 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 reaching $236 million. Aave, the largest lending protocol in DeFi, allows users to deposit crypto to earn yields, while others borrow against collateral. Kelp, a liquid restaking protocol, takes already-staked ether on Ethereum and channels it through a yield-generating system called EigenLayer, issuing a receipt token, rsETH, in exchange. Users trade this rsETH and, crucially, post it on Aave as collateral to borrow against. On Saturday, attackers deceived Kelp's cross-chain bridge into releasing 116,500 rsETH, worth about $292 million, to a controlled address. They then deposited the stolen rsETH onto Aave V3 as collateral to borrow wrapped ether against it. Aave initially stated that the Umbrella reserve would cover any deficit but later softened its stance to 'explore paths to offset the deficit.' The concentration of loans on Ethereum explains why the damage is significant. Aave's loan book spans 22 chains, but Ethereum alone holds $14.24 billion of the $17.82 billion in outstanding borrows, with WETH accounting for 39.49% of all loans on the protocol. The attack targeted the exact collateral-to-WETH pair that dominates Aave's book. Stani Kulechov, Aave's founder, confirmed that the exploit was external and the protocol's contracts were not compromised. However, Aave accepted a liquid restaking token as collateral, and its backing vanished on a bridge Aave doesn't control, leaving depositors vulnerable to losses. Liquid restaking tokens were whitelisted across major lending protocols due to their yield and growing share of Ethereum's locked value. Risk models priced them as if they would hold peg under normal conditions but didn't account for a scenario where the collateral becomes worthless due to a bridge exploit on an unrelated chain. The token price is now reflecting the uncertainty surrounding whether the Umbrella reserve is sufficient to cover the deficit and whether stkAAVE holders backing that reserve will absorb the loss.