Aave just saw $6.6 billion go out the door, and it’s not because someone hacked Aave.
The protocol’s total locked-down value fell from $26.4 billion on April 18 to nearly $20 billion in the US morning hours on Sunday, as of DefiLlama. The AAVE token fell 16% to $92 and daily fees rose to $1.99 million as liquidations progressed through the weekend.
Depositors are running because Aave carries a hole it did not create. When the 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 loan at around $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 returns and other users lend against collateral. Kelp is a floating restaking protocol which takes ether already staked on Ethereum and routes it through a separate dividend generating system called EigenLayer that issues 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.
On Saturday, the attackers tricked Kelp’s cross-chain bridge into releasing 116,500 rsETH, worth about $292 million, to an address they controlled. They then deposited the stolen rsETH on Aave V3 as collateral and borrowed packaged ether against it.
A bridge is a blockchain-based recording that transfers tokens between different networks where they may not be natively supported.
Aave first said the umbrella reserve would cover any shortfall. By Saturday afternoon, the language had been softened to “explore ways to offset the deficit.” A protocol doesn’t talk like that when it knows how much it owes and has the money to pay it.
The concentration explains why the damage lands here. Aave’s loan book spans 22 chains, but Ethereum alone has $14.24 billion of the $17.82 billion in outstanding loans. WETH is 39.49% of all loans on the protocol, meaning the attack hit the exact security-to-WETH pair that dominates Aave’s book.
Stani Kulechov, Aave’s founder, said the exploit was external and the protocol’s contracts were not compromised. But Aave accepted a floating restaking token as collateral, and that token’s backing disappeared on a bridge Aave does not control. Depositors lose both ways.
Floating redeposit tokens were whitelisted across all major lending protocols because they had returns and represented a growing share of Ethereum’s locked value.
The risk models priced them as if they would stick around under normal conditions. However, none of them priced a scenario where security goes to zero because a bridge on a chain Aave does not touch was exploited on a Saturday.
“AAVE is the backbone of DeFi, has billions in there, and pretty much every new DeFi infrastructure on new chains is a fork of it,” wrote trader Altcoin Sherpa on X. “When AAVE is at risk of contagion, it shows the fragility of the whole system.”
What the token price is trying to answer now is whether Umbrella is big enough to cover the gap and whether stkAAVE holders backing that reserve are eating the loss.
