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A major security breach rocked the decentralized finance sector on April 18, 2025, after crypto investigator ZachXBT flagged a sophisticated exploit targeting KelpDAO’s rsETH liquid restaking token. The incident is estimated to have caused $292 million in losses, with sharp declines reported across related assets.
On-chain analysis indicates the attacker exploited a cross-chain vulnerability to mint between $280 million and $300 million worth of rsETH on EigenLayer. The fraudulently minted tokens were then used as collateral on Aave V3 to borrow large amounts of ETH and Wrapped ETH (WETH). To obscure the transaction trail, the stolen funds were reportedly routed through Tornado Cash.
Blockchain data cited in the report suggests approximately 116,500 rsETH tokens were drained. The exploit was traced to a suspicious call on LayerZero’s EndpointV2 contract at 17:35 UTC, which allegedly triggered KelpDAO’s bridge contract to release funds to an attacker-controlled wallet.
For Aave V3, the fallout has been described as significant, with reports suggesting the protocol could face up to $177 million in potential bad debt due to the compromised collateral.
KelpDAO responded by pausing rsETH contracts across the Ethereum mainnet and multiple Layer 2 networks. It also said it was coordinating with LayerZero, Unichain, auditors, and security experts to investigate the root cause.
Aave stated that its own contracts were not directly exploited. As a precaution, it froze rsETH markets on both Aave V3 and V4 and said it would explore deficit mitigation options if bad debt materializes.
Market reaction was immediate. The AAVE token fell by more than 10% to approximately $105.73, attributed to panic selling, while Ethereum declined around 3% over the same window.
The incident highlights ongoing vulnerabilities in cross-chain DeFi infrastructure and raises renewed concerns about collateral risk management in lending protocols.
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