Aave Faces $6 Billion Deposit Exodus Following Kelp Hack, Exposing DeFi Lender's Structural Vulnerabilities

Aave has witnessed a massive exodus of $6.6 billion in deposits, not due to a direct hack, but as a consequence of a security breach in Kelp's bridge. 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 amidst a wave of liquidations over the weekend. Depositors are fleeing because Aave is now carrying a significant debt it did not create. Attackers drained 116,500 rsETH from Kelp's bridge and 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, the largest lending protocol in DeFi, allows users to deposit cryptocurrency to earn yield, while others borrow against collateral. Kelp, a liquid restaking protocol, takes already staked ether on Ethereum and routes it through EigenLayer, issuing a receipt token called rsETH. This rsETH is traded and used as collateral on Aave. On Saturday, attackers tricked 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 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 due to Aave's loan book spanning 22 chains, with Ethereum holding $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, 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 does not control, leaving depositors at risk. Liquid restaking tokens were whitelisted across major lending protocols due to their yield and representation of Ethereum's locked value. Risk models priced them assuming they would hold 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 now reflects concerns about whether Umbrella is sufficient to cover the resulting hole and whether stkAAVE holders will bear the loss.