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

A recent exploit of the Kelp DAO and LayerZero bridge has put lending protocol Aave at risk of losses of up to $230 million, depending on the resolution of the situation. The incident centers on 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, creating 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 Labs contained the risk by freezing rsETH markets, setting loan-to-value ratios to zero, 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 stemmed from weaknesses in Kelp's verification of cross-chain messages using LayerZero, allowing the attacker to extract value from the system. The incident has raised concerns about the safety of interconnected DeFi infrastructure, with around $6 billion in total value locked withdrawn from Aave following the incident.