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

Aave has witnessed a massive exodus of $6.6 billion in deposits, but it's not 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 price 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 siphoned off 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 yields, and others borrow against collateral. Kelp is a liquid restaking protocol that takes ether already staked 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 some users posted it on Aave as collateral to borrow against. On Saturday, attackers tricked Kelp's cross-chain bridge into releasing 116,500 rsETH, worth around $292 million, to an address they controlled. 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 the issue explains why the damage is landing on Aave. Aave's loan book spans 22 chains, but Ethereum alone holds $14.24 billion of the $17.82 billion in outstanding borrows. WETH accounts for 39.49% of all loans on the protocol, meaning the attack hit the exact collateral-to-WETH pair that dominates Aave's book. Stani Kulechov, Aave's founder, 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. The depositors lose either way. Liquid restaking tokens were whitelisted across every major lending protocol because they carried yield and represented a growing share of Ethereum's locked value. The risk models priced them as if they would hold peg under normal conditions. However, none of them accounted for a scenario where the collateral goes to zero because a bridge on a chain Aave does not touch got exploited on a Saturday. The token price is now trying to answer whether Umbrella is big enough to cover the hole and whether stkAAVE holders who back that reserve are about to absorb the loss.