What happened with Kelp DAO and Aave?

A $291 million exploit linked to Kelp DAO triggered a liquidity crisis on Aave after attackers manipulated rsETH and borrowed funds. This pushed Aave’s utilisation rate to 100%, meaning most available liquidity was drained. Users then struggled to withdraw funds.

How did the Kelp DAO exploit impact Aave users?

Aave users faced delays and difficulty withdrawing funds because liquidity in key pools was exhausted. When utilisation hits 100%, there is effectively no available capital left to withdraw. This created panic and triggered large-scale exits.

What caused the $6.2 billion withdrawal from Aave?

The exploit sparked fear of contagion across DeFi, leading users to withdraw funds rapidly. Around $6.2 billion in net withdrawals were recorded as users rushed to reduce exposure. This kind of reaction is common during perceived protocol risk events.

What is rsETH and how was it used in the exploit?

rsETH is a liquid staking token issued by Kelp DAO that represents staked Ethereum. Attackers manipulated the token via a bridge exploit and used it as collateral on Aave to borrow real assets. This created what experts described as “bad debt.”

Why did Aave’s utilisation rate hit 100%?

The attackers borrowed heavily against manipulated collateral, consuming nearly all available liquidity in a lending pool. When utilisation reaches 100%, all supplied funds are effectively lent out. This leaves no buffer for withdrawals.

How did the market react to the exploit?

Aave’s governance token dropped 16% to around $90.13, while Ethereum fell about 2% to $2,300. These price moves reflect broader risk-off sentiment in DeFi following the exploit. Market confidence was shaken.

What actions did Aave and Kelp DAO take after the hack?

Aave froze affected markets tied to rsETH to prevent further damage. Kelp DAO paused its rsETH contracts across multiple networks while investigating the issue. These are standard emergency responses in DeFi incidents.

What are “negative secondary effects” in this situation?

Users began borrowing stablecoins against their deposits instead of withdrawing, which further strained liquidity. This behaviour can worsen the situation by increasing demand for available capital. It adds pressure to already stressed lending pools.

Kelp DAO hack triggers Aave $6.2B withdrawal panic

Written by Liezl GambePublished Apr. 20 2026Last Updated Apr. 20 2026

A $291 million exploit linked to Kelp DAO triggered a liquidity crunch on Aave, as users rushed to withdraw funds and faced delays.

Attackers exploited a LayerZero-based bridge to manipulate rsETH, then used the token to borrow funds on Aave, pushing utilisation rates to 100% and draining available liquidity.

“The attackers didn’t abscond with rsETH that had been maliciously released from the bridge. Rather, they used Aave to borrow regular funds, creating ‘massive bad debt,’”

Said Francesco Andreoli, head of developer relations at Consensys and MetaMask.

The incident forced Aave to freeze affected markets while Kelp DAO paused rsETH contracts across multiple networks to investigate the breach.

The fallout triggered $6.2 billion in net withdrawals from Aave, as users scrambled to exit positions and protect funds amid fears of contagion across DeFi.

Aave’s governance token fell 16% to $90.13, while Ethereum dropped 2% to around $2,300, reflecting broader market stress.

The exploit has raised fresh concerns about DeFi security and systemic risk, with critics warning such incidents could undermine confidence in decentralised financial systems.

At the time of reporting, Aave price was $89.95.