Deposits on the leading decentralized finance (DeFi) lending platform, AAVE, have dropped sharply following a hack linked to restaking project, Kelp DAO, triggering a wave of withdrawals across the sector.
The exploit, which drained roughly $290 million worth of crypto assets from Kelp DAO via a cross-chain bridge vulnerability, prompted users to pull funds from AAVE amid fears of bad debt exposure and liquidity risks.
AAVE saw billions of dollars exit the protocol in the days after the incident with some estimates putting total outflows at over $10 billion, or roughly a fifth of deposits prior to the hack.
Other data suggests the sell-off intensified over several days with total value locked on AAVE falling by as much as $15 billion following the exploit, highlighting the scale of investor retreat.
The attack involved the minting of unbacked rsETH tokens, which were then used as collateral on AAVE to borrow Ether, leaving the protocol exposed to potential bad debt and sparking panic withdrawals.
The incident pushed utilisation rates on key AAVE lending pools to near 100%, temporarily limiting users’ ability to withdraw funds and amplifying concerns over liquidity.
The fallout has spread beyond AAVE, with other DeFi platforms also reporting declines in deposits as investors reassess risks tied to interconnected protocols and cross-chain infrastructure.
Stay tuned to BitKE updates on DeFi developments.
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