TL;DR
Kelp lost $290 million from a single verifier setup.
LayerZero warned Kelp, but Kelp ignored the advice.
Attacker used stolen rsETH as collateral on Aave.
LayerZero Labs said a misconfigured Kelp DAO bridge allowed attackers to mint about 116,500 rsETH (roughly $292–293 million) on April 18–19, 2026, and that the stolen tokens flowed into Aave V3 as collateral, triggering a liquidity crisis. The episode has forced lenders, token issuers and compliance teams to re-evaluate how liquid restaking tokens are accepted as collateral across DeFi.
The exploit and immediate fallout
Attackers used RPC poisoning combined with coordinated DDoS activity to subvert Kelp DAO’s LayerZero-based cross‑chain bridge and its single‑verifier Decentralized Verifier Network (DVN), according to LayerZero’s preliminary analysis. That manipulation produced approximately 116,500 unbacked rsETH, valued at about $292–293 million, which was then deposited on Aave V3 and used to borrow wrapped Ether (WETH).
LayerZero said the incident “reflected an unsafe application configuration rather than a compromise of LayerZero itself,” and pointed to the DAO’s 1‑of‑1 verifier setup as a single point of failure. The company added it will no longer sign or attest messages for applications that retain a single‑verifier design and is urging migration to multi‑verifier DVN configurations.
The stolen rsETH pushed utilization of key pools — notably the ETH/WETH pool on Aave — to 100%, constraining withdrawals and prompting a run. Aave’s Total Value Locked fell by about $6 billion in roughly two days, from $26.4 billion to roughly $20 billion, while the AAVE token plunged around 15–18% amid withdrawals, according to industry reporting.
Aave’s team estimated the incident generated roughly $195–196 million of bad debt that could not be recovered through standard liquidations.
Stani Kulechov, founder of Aave, stressed that the protocol’s smart contracts themselves were not breached. “The protocol’s smart contracts were not breached,” he said, framing the crisis as originating in compromised collateral rather than a core contract vulnerability.
Systemic questions and implications for risk management
The episode underscores how cross‑chain infrastructure faults can cascade into major liquidity and solvency stress at large DeFi lenders when liquid restaking tokens are widely reused as collateral. Industry observers have highlighted that reusing the same asset across multiple protocols boosts capital efficiency but concentrates exposure: a single exploit of a bridge or of the staking derivative’s backing can create widespread bad debt and runs.
LayerZero’s decision to refuse signatures for single‑verifier applications effectively raises the operational cost of maintaining cross‑chain bridges that rely on 1‑of‑1 DVNs. For protocol product teams and compliance officers, the incident sharpens three immediate priorities: tighten collateral acceptance policies, require diversified attestation and verification paths for cross‑chain messages, and expand due diligence to include external infrastructure and governance stacks supporting tokenized assets.
- Estimated illicit minting: ~116,500 rsETH (≈ $292–293 million)
- Aave TVL decline: ~ $6 billion (from $26.4 billion to ≈ $20 billion)
- Estimated Aave bad debt: ≈ $195–196 million
- AAVE price move: roughly 15–18% decline during the run
As of April 20, 2026, the allocation of ultimate financial responsibility for the $292 million loss remained unresolved, leaving token holders, Kelp DAO, LayerZero and Aave in active negotiation and public scrutiny. Market participants, compliance teams and custodians will watch any decisions on compensation, governance changes at Kelp DAO, and LayerZero’s enforcement of multi‑verifier standards, since those outcomes will shape collateral policies, insurance arrangements and the operational costs of cross‑chain constructions going forward.
