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

Aave has experienced a staggering $6.6 billion withdrawal, but it's not due to a direct hack on the platform. The total value locked in the protocol dropped from $26.4 billion on April 18 to approximately $20 billion by Sunday morning, according to DefiLlama. The AAVE token's value fell by 16% to $92, while daily fees skyrocketed to $1.99 million as liquidations swept through the weekend. Depositors are fleeing because Aave is now carrying a liability it didn't create. When attackers drained 116,500 rsETH from Kelp's bridge on Saturday, they used the stolen tokens as collateral on Aave V3 to borrow wrapped ether against them. On-chain trackers estimate that Aave's borrow amount is around $196 million, with total positions across Aave, Compound, and Euler reaching approximately $236 million. Aave is the largest lending protocol in DeFi, allowing users to deposit cryptocurrency 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, rsETH, in exchange. Users trade and post rsETH as collateral to borrow against it. 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 'explore paths to offset the deficit.' The concentration of the damage is due to Aave's loan book spanning 22 chains, with Ethereum alone 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. Aave's founder, Stani Kulechov, said 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, leaving depositors vulnerable to losses. Liquid restaking tokens were whitelisted across major lending protocols due to their yield and representation 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 concerns about whether the Umbrella reserve is sufficient to cover the hole and whether stkAAVE holders who back that reserve will absorb the loss.