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

Aave has witnessed a staggering $6.6 billion withdrawal, but it's not due to a direct hack on the platform. 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 experienced a 16% decline to $92, while daily fees surged to $1.99 million amidst a flurry of liquidations over the weekend. Depositors are fleeing because Aave is shouldering a burden it didn't create. When attackers siphoned off 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 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 already-staked ether on Ethereum and channels it through a yield-generating system called EigenLayer, issuing a receipt token, rsETH, in exchange. That rsETH is what users trade and, crucially, what some users posted as collateral on Aave to borrow against. On Saturday, attackers deceived Kelp's cross-chain bridge into releasing 116,500 rsETH, worth approximately $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 damage can be attributed to Aave's loan book, which spans 22 chains, but Ethereum alone holds $14.24 billion of the $17.82 billion in outstanding borrows. WETH constitutes 39.49% of all loans on the protocol, meaning the attack targeted the exact collateral-to-WETH pair that dominates Aave's book. 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 representation of a growing share 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 attempting to gauge whether Umbrella is sufficient to cover the deficit and whether stkAAVE holders who back the reserve will absorb the loss.