Aave Faced with Severe Liquidity Crisis Following Kelp DAO Hack

Aave, one of the largest decentralized lending platforms in DeFi, has been hit by a major liquidity crisis after a hack on the Kelp DAO protocol.

The incident began when attackers exploited a vulnerability in a LayerZero V2 bridge between Unichain and Ethereum, allowing them to drain $293 million worth of rsETH from Kelp DAO without burning the corresponding tokens on the source chain.

The stolen tokens were then deposited into Aave V3 as collateral, triggering a chain reaction that led to massive withdrawals. Over $6.6 billion left Aave in under 24 hours, with major players like Justin Sun and the MEXC exchange among those pulling large sums.

As a result of the hack, Aave's total value locked (TVL) has dropped from $48.5 billion to around $30.7 billion, a decline of roughly one-third in just a few days.

Natalie Newson, a senior blockchain security researcher at CertiK, warned that Aave's 'self-defense systems are down,' leaving the platform vulnerable to further losses due to unbacked collateral.