Over $8.6B Drained From Aave as Kelp DAO Hack Triggers Massive DeFi Exodus

Aave Loses $8.6 Billion in Two Days

The leading DeFi lending protocol Aave experienced a dramatic $8.6 billion outflow over just 48 hours. According to DefiLlama data, the platform's total value locked (TVL) plummeted from $26.3 billion to $17.7 billion as investors rushed to withdraw funds following the exploitation of liquid restaking protocol Kelp DAO.

The AAVE token dropped more than 15%, falling to $91. Its market capitalization contracted from $1.8 billion to $1.3 billion.

USDT and USDC pools on Aave v3 have been completely depleted. Assets worth $5.1 billion are frozen — withdrawals are only possible once fresh liquidity flows in or existing loans are repaid.

Inside the Kelp DAO Exploit

The panic was triggered by an attack on Kelp DAO's cross-chain bridge, built on LayerZero infrastructure. On April 18, attackers extracted 116,500 rsETH worth $293 million.

The stolen tokens were deposited into Aave v3 as collateral, allowing the hackers to borrow wETH against them. They took out approximately $196 million directly from Aave, while their combined positions across Aave, Compound, and Euler totaled around $236 million.

On-chain analysts Lookonchain estimated the resulting hole in the project's balance sheet at roughly $195 million — funds that are effectively unrecoverable.

"Due to the KelpDAO exploiter borrowing over 82,600 $ETH ($195M) from #Aave using $RSETH as collateral, bad debt has appeared on #Aave. Many whales have withdrawn funds from #Aave, causing its TVL to drop from $26.396B to $20.114B — a decline of $6.28B." — Lookonchain (@lookonchain), original post

Curve Finance founder Michael Egorov noted that Aave and other protocols now hold hundreds of millions of dollars in questionable collateral and irrecoverable debt. He pointed out that Aave holds rsETH that cannot be sold while all ETH has been borrowed out — making Ethereum withdrawals impossible.

Why This Matters

The incident exposed a systemic vulnerability in DeFi lending: tokens from a compromised protocol can be used as collateral on other platforms, spreading the damage across the entire ecosystem. Total DeFi TVL collapsed from $99.4 billion to $85.8 billion — a $13.6 billion decline.

The contagion spread to Solana as well. Journalist Colin Wu reported a sharp spike in deposit rates and utilization ratios across several USDC markets on Kamino, Solana's leading lending protocol. The $178 million USDC reserve on the Prime Market was fully exhausted, and utilization across multiple other vaults exceeded 95%.

The rsETH markets on Aave v3 and v4 have been frozen to prevent further suspicious activity. wETH reserves are locked on Ethereum, Arbitrum, Base, Mantle, and Linea.

"The rsETH markets on Aave V3 and Aave V4 have been frozen. Aave's contracts have not been exploited and this is an exploit related to rsETH. The freeze follows an exploit of the Kelp DAO rsETH bridge." — Aave (@aave), original post

The Aave team initially claimed its Umbrella reserve fund would cover any shortfall but later softened the language to "exploring compensation pathways." Several projects — including Curve Finance and Ethena — suspended use of the Kelp DAO bridge, along with other networks and protocols that interact with rsETH or LayerZero.

LayerZero Investigation Points to North Korean Hackers

Kelp DAO continues investigating the root cause of the breach. Meanwhile, LayerZero developers released preliminary findings from their internal probe.

LayerZero (@LayerZero_Core) announcement

According to their analysis, the attack was carried out by North Korean hackers — specifically the TraderTraitor group, linked to previous exploits of Ronin ($625 million), Bybit ($1.5 billion), and Drift Protocol ($280 million).

The attack vector was as follows: the hackers gained access to the list of RPC servers used by LayerZero Labs' Decentralized Verifier Network (DVN). They poisoned two of these servers, forcing them to deliver a fraudulent cross-chain message to the DVN. Simultaneously, attackers launched a DDoS attack against clean servers to ensure the network relied on the compromised nodes.

Kelp DAO operated a single DVN configuration without redundancy (1/1), meaning no independent verifier could intercept and reject the forged message. LayerZero developers emphasized that they had previously advised the project on DVN diversification best practices, but the recommendations went unheeded.

LayerZero confirmed that the compromise did not affect other assets or applications. The team continues working with law enforcement agencies and tracking the stolen funds.