The decentralized finance (DeFi) ecosystem is experiencing a sharp capital outflow following this weekend’s exploitation of the KelpDAO protocol.
Leading DeFi lending platform Aave has lost $8.45 billion in deposits over the past 48 hours, leading to a broader drop of $13.21 billion in total value locked (TVL) across DeFi. TVL refers to the combined dollar value of cryptoassets deposited across DeFi protocols, such as Aave, and is widely used to measure liquidity and overall market activity.
Total value locked across DeFi fell from $99.497 billion to $86.286 billion, while Aaves TVL fell by $8.45 billion to $17.947 billion in the same period, according to DefiLlama. Protocol-level data shows double-digit percentage declines across platforms, including Euler, Sentora and Aave, with losses concentrated in lending, redeposit and return strategies linked to the affected security.
The move stems from a $292 million Kelp bridge exploit that allowed attackers to use stolen rsETH, a liquid re-stake token widely used in DeFi, as collateral to borrow money on lending platforms.
Because these stolen tokens lacked legitimate collateral, loans against them created potential losses for lenders. It’s the equivalent of defrauding a traditional bank by depositing fake fiat and taking out loans against it, ultimately leaving the lender with bad debt.
Protocols responded by freezing affected markets while panicked users withdrew funds, leading to a broad drop in the total value locked.
Token prices have moved less strongly than deposits. The AAVE token is down about 2.5% in 24 hours, while UNI and LINK are down less than 1% in the same period, according to CoinDesk market data.
Peter Chung, head of research at Presto Research, said in a note that the incident highlights risks in cross-chain infrastructure, particularly in verification systems used by bridges.
Early analysis suggests that the problem may have arisen in the verification layer rather than in the smart contracts themselves.
Chung added that the episode also shows how interconnected DeFi protocols can transmit shocks beyond the initial point of failure, with withdrawal activity and market freezes extending to platforms without direct exposure to the exploit.
