Kelp DAO exploit sparks liquidity crunch at Aave, triggers panic withdrawal of $6.2 billion

Less than a day after attackers drained $291 million worth of cryptocurrencies from the associated infrastructure Decentralized finance DAO Kelp Project, users on ghostone of the most tested DeFi protocols, has struggled to withdraw funds amid a liquidity crunch.

The bridge that typically allows users to move an asset called rsETH from one network to another was exploited on Saturday, prompting Aave to freeze markets linked to the token, which attackers used to borrow money from the platform, and its lending protocol. He said In X’s post.

Meanwhile, the seaweed dao He said In one of X’s posts, it said it had “temporarily paused” rsETH contracts across the Ethereum mainnet and several others Layer 2 scaling networks While investigating suspicious activities.

Attacker activity on Aave caused the so-called Core Lending Pool utilization rate to rise to 100%, indicating that users who had previously deposited Ethereum and wrapped Ethereum has little liquidity left to withdraw, Aavescan Data Show.

An hour before Aave closed the markets, blockchain security firm PeckShield It has been marked A transaction shows 116,500 rsETH, worth $291 million at the time, flowing into a new wallet.

The attackers did not escape with the maliciously released rsETH from the bridge. Instead, they used Aave to borrow regular money, creating “enormous bad debt,” said Francesco Andreoli, head of developer relations at Consensys and MetaMask. He said In Post X. (Disclaimer: Consensys is One of many investors In editorially independent decoding.)

The Aave governance token fell to $90.13 on Sunday, a 16% drop compared to the previous day, according to Queen Gekko. Ethereum price fell 2% to $2,300 during the same period.

As users struggled to withdraw from Aave, they began borrowing against their stablecoin deposits, further straining liquidity as a sign of “negative spillovers.” He said Monetsupply.eth, the pseudonymous head of strategy at the DeFi project Spark, said in X’s post.

The Kelp DAO exploit and the ensuing fallout on Aave led to a massive wave of withdrawals from several DeFi protocols, even those that were not affected, according to 0xngmi, the pseudonymous co-founder of data provider DefiLlama. On a net basis, users had earned $6.2 billion from Aave alone by early Sunday He said In X’s post.

With the infection seemingly spreading, the latest DeFi exploit provides “a lot of ammunition” to critics skeptical of systems that seek to replace traditional financial intermediaries with code, said Salman Bani, general counsel at Plume, a tokenization-focused network. He said In X’s post.

Kelp DAO issues rsETH, a liquid staking token that allows users to earn Ethereum staking rewards and EigenLayer rewards. It serves as a negotiable “receipt” for Kelp DAO depositors. The Kelp DAO Bridge is built on top of infrastructure designed by LayerZero, a protocol that allows DeFi applications to send messages and transfer assets across blockchains.

Stacy Moore, a well-known blockchain researcher, He said In X’s post it appears that the exploit is based on a single point of failure. She wrote that the “fake” message used by the attackers essentially tricked the Kelp DAO Bridge into releasing rsETH on Ethereum without removing a corresponding amount of tokens from trading on the Ethereum Layer-2 Unichain.

However, some onlookers were keen to find a way forward, including crypto entrepreneur and Tron founder Justin Sun. He tried to negotiate, arguing that the attackers would eventually have difficulty spending the stolen money.

“How much do you want (Do you)?” he he asked Them in function