Aave Token Price Plummets 26% Amid Kelp DAO Hack Fallout

A major hack of the Kelp DAO's LayerZero bridge has rippled through decentralized finance (DeFi) lending and market confidence, causing a significant downturn in Aave's native token price. Over the weekend, AAVE fell by about 26%, with the protocol also experiencing sharp declines in total value locked (TVL) and continued outflows.

The attacker drained roughly 116,500 rsETH, valued at about $292 million, from Kelp DAO's bridge, using the stolen staking tokens as collateral on Aave V3 to borrow approximately $236 million in WETH. However, since the rsETH became unbacked, the collateral underpinning those positions is not liquidatable, leaving the borrowed funds stranded within the lending system.

Aave is now facing a $280 million in bad debt that it cannot directly recover. The impact on users and depositors was swift, with Aave's ETH pool reaching 100% utilization, making it nearly impossible for users to withdraw their funds quickly. As crypto portfolio manager Pratik Kala put it, the fear wasn't about losses created by Aave itself, but about the protocol carrying a gap it did not make, prompting withdrawals driven by uncertainty.