Aave Faces Potential Losses of Up to $230 Million Following Kelp DAO Bridge Exploit

A recent bridge exploit involving Kelp DAO and LayerZero has put lending protocol Aave at risk of losing up to $230 million, depending on the resolution of the situation. The incident revolves around rsETH, a liquid restaking token issued by KelpDAO, which relies on a bridge mechanism to move tokens between blockchains. An attacker exploited this setup by forging a transfer message, resulting in the creation of new tokens without backing and releasing 116,500 rsETH from the Ethereum-side bridge. Instead of selling the assets, the attacker deposited 89,567 rsETH into Aave as collateral and borrowed approximately $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 estimated losses ranging from $124 million if spread across all rsETH holders to $230 million if isolated to Layer 2 networks. The exploit highlights the importance of addressing weaknesses in cross-chain messaging and the potential risks of undercollateralized loans in DeFi infrastructure.