Aave records $6 billion TVL drop as Kelp hack exposes structural risk at DeFi lender
The AAVE token fell 16% and deposits fled the protocol after attackers used drained rsETH as collateral to borrow wrapped ether, leaving Aave to quantify how much bad debt it is now carrying.
What to know:
- Aave’s total value locked plunged by about $6.6 billion and its token fell 16% after attackers used $292 million in stolen rsETH from Kelp’s bridge as collateral on Aave V3.
- The exploit, which did not compromise Aave’s own contracts, left roughly $196 million in Aave-specific bad debt concentrated in the dominant rsETH–wrapped ether pair on Ethereum.
- Aave’s Umbrella reserve may not fully cover the deficit, raising the prospect that stkAAVE holders could absorb losses and underscoring systemic risks from liquid restaking tokens across DeFi.
Depositors are running because Aave is carrying a hole it did not create. When attackers drained 116,500 rsETH from Kelp’s bridge on Saturday, they dumped the stolen tokens on Aave V3 as collateral and borrowed wrapped ether against them.
On-chain trackers put the Aave-specific borrow at roughly $196 million, with total positions across Aave, Compound and Euler around $236 million.
Aave is the largest lending protocol in DeFi, where users deposit crypto to earn yield and other users borrow against collateral. Kelp is a liquid restaking protocol, which takes ether that has already been staked on Ethereum and routes it through a separate yield-generating system called EigenLayer, issuing a receipt token called rsETH in exchange.
That rsETH is what users trade and, critically, what some users posted on Aave as collateral to borrow against.
