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

Aave has witnessed a staggering $6.6 billion withdrawal, not due to a direct hack, but as a result of a complex exploit. The protocol's total value locked plummeted from $26.4 billion on April 18 to approximately $20 billion by Sunday morning, according to DefiLlama. The AAVE token's value dropped 16% to $92, while daily fees surged to $1.99 million as liquidations swept through the weekend. Depositors are fleeing because Aave has been left carrying a significant burden not of its own making. 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 totaling approximately $236 million. Aave, the largest lending protocol in DeFi, allows users to deposit cryptocurrency to earn interest, while others borrow against collateral. Kelp, a liquid restaking protocol, takes already staked ether on Ethereum and channels it through a separate yield-generating system called EigenLayer, issuing a receipt token, rsETH, in exchange. This rsETH is what users trade and, crucially, what some users posted as collateral on Aave to borrow against. 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 by Saturday afternoon, the language had shifted to exploring paths to offset the deficit. The concentration of the damage is due to Aave's loan book, which spans 22 chains but has $14.24 billion of the $17.82 billion in outstanding borrows on Ethereum alone, with WETH making up 39.49% of all loans on the protocol. 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 on a bridge Aave does not 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, but risk models did not account for a scenario where the collateral's value drops to zero 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 who back the reserve will absorb the loss.