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DeFi Shockwave Reveals US$291M Exploit, Triggers Aave Liquidity Crunch
- A cross-chain exploit involving rsETH drained US$291M, exposing weaknesses in Kelp DAO’s infrastructure and triggering a wider DeFi reaction.
- Aave froze affected markets as liquidity evaporated, with users unable to withdraw and forced into defensive borrowing behaviour.
- The incident sparked billions in outflows and renewed scrutiny of cross-chain design risks and systemic fragility in DeFi.
A US$291 million (AU$407.4 million) exploit tied to Kelp DAO has sent shockwaves through decentralised finance, exposing vulnerabilities and triggering liquidity stress across lending platforms. The attack centred on a compromised bridge used to move rsETH between networks, enabling attackers to exploit the system and use the token to access liquidity on Aave.
Following the breach, Aave suspended rsETH-related markets after identifying that the asset had been used to extract liquidity through borrowing activity. Concurrently, Kelp DAO paused its rsETH contracts across Ethereum and multiple layer-2 networks as investigations began.
Related: US$50M AAVE Trade Gone Wrong Leaves Trader With Just 324 Tokens
From Exploit to Liquidity Crunch
The exploit rapidly strained Aave’s lending pools, pushing utilisation rates to 100% and leaving users with limited or no ability to withdraw their funds. On-chain data highlighted a transfer of 116,500 rsETH, worth US$291 million (AU$407.4 million), to a newly created wallet prior to the platform’s intervention.
Instead of directly removing bridged assets, the attackers used rsETH as collateral to borrow funds, generating substantial bad debt within the protocol. As liquidity tightened, depositors increasingly borrowed stablecoins against locked assets, worsening the situation.
The disruption quickly spread, prompting heavy outflows across DeFi platforms, including those not directly affected. Aave alone recorded net withdrawals of roughly US$6.2 billion (AU$8.68 billion) by early Sunday.
rsETH, issued by Kelp DAO, represents staked Ethereum deposits while allowing continued liquidity and yield generation. The incident has intensified scrutiny of cross-chain systems and highlighted structural risks in DeFi infrastructure.
Related: Tether Backs $134M Stablecoin Bet to Bring Crypto Into Everyday Use
Author
Rachel Lourdesamy
Rachel is a freelance writer based in Sydney with experience within financial services, marketing, and corporate communications in the APAC region. An avid reader and a graduate of the University of Sydney, she covers topics including business, finance and human interest.
