Aave Faces $6 Billion Deposit Exodus After Kelp Hack Exposes DeFi Lender's Vulnerability

Aave has experienced a massive exodus of $6.6 billion in deposits, but the protocol itself was not directly hacked. The total value locked in Aave dropped from $26.4 billion on April 18 to nearly $20 billion by Sunday morning, according to DefiLlama. The AAVE token price fell 16% to $92, while daily fees surged to $1.99 million due to liquidations over the weekend. Depositors are fleeing because Aave is now carrying a significant liability that it did not create. Attackers drained 116,500 rsETH from Kelp's bridge on Saturday and used the stolen tokens as collateral to borrow wrapped ether on Aave V3. On-chain data estimates that Aave-specific borrowing amounts to around $196 million, with total positions across Aave, Compound, and Euler reaching $236 million. Aave is the largest lending protocol in DeFi, allowing users to deposit crypto to earn yield while others borrow against collateral. Kelp is a liquid restaking protocol that takes already-staked ether on Ethereum and routes it through a separate yield-generating system called EigenLayer, issuing a receipt token called rsETH. This rsETH is traded by users and, crucially, used 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 later softened its stance to exploring paths to offset the deficit. The damage is concentrated because Aave's loan book is heavily weighted towards Ethereum, with $14.24 billion of the $17.82 billion in outstanding borrows. WETH accounts for 39.49% of all loans on the protocol, making the attack particularly impactful. Stani Kulechov, Aave's founder, emphasized that the exploit was external and the protocol's contracts were not compromised. However, Aave accepted a liquid restaking token as collateral, and the token's backing vanished due to an exploit on a bridge Aave does not control. Depositors are at risk of losing their funds 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 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 an unrelated chain. The token price is now reflecting the uncertainty over whether Umbrella is sufficient to cover the resulting hole and whether stkAAVE holders who back that reserve will absorb the loss.