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A nearly $300 million exploit targeting Kelp DAO’s rsETH cross-chain bridge has triggered a mass withdrawal event at Aave, with more than $5.4 billion in ETH leaving the protocol as users rushed to pull funds amid concerns that bad debt could accumulate on the lending platform.
The attacker deposited rsETH into Aave to drain ETH, leaving the protocol with exposure it cannot easily unwind. As a result, Aave’s ETH utilization rate rose to 100%, indicating that every available ETH in the lending pool is now borrowed and the protocol has no remaining liquidity buffer.
The scale of the withdrawal was driven by large holders acting quickly. Justin Sun removed 65,584 ETH from Aave in a single move, worth approximately $154 million.
On-chain tracking by Lookonchain characterized the broader $5.4 billion outflow as a wider panic among sophisticated users, tied to what bad debt at Aave would mean for depositors who may not be able to withdraw on demand.
Kelp DAO paused rsETH contracts across mainnet and multiple Layer 2 networks shortly after identifying suspicious cross-chain activity. The team said it was working with LayerZero, Unichain, auditors, and security experts to determine the root cause.
On-chain analysis from D2 Finance pointed to a private key leak on the source chain as the root cause. The leak created a trust issue with OApp nodes, enabling the attacker to manipulate the bridge.
Investigators also outlined two possible failure paths:
Kelp DAO’s contracts remain paused while the investigation continues. With Aave’s ETH utilization at 100%, depositors cannot withdraw until borrowed ETH is repaid or new liquidity enters the pool.
The bad debt question is the more pressing issue. If the exploited rsETH positions cannot be recovered, Aave will need to determine how losses are distributed across the protocol, a process described as historically contentious and slow.
Full forensics and an attacker cluster map are still being compiled. Official updates are expected through Kelp DAO’s verified channels as the investigation progresses.
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