DeFi is hacked again for $292 million, is even Aave no longer safe now?

Original | Odaily Planet Daily (@OdailyChina)

Author | Azuma (@azuma_eth)

On April 19th, Beijing time, DeFi security was hit again.

On-chain data shows that, around 1:35 a.m. this morning, the second-largest liquidity staking protocol Kelp DAO’s LayerZero-based rsETH bridge contract was suspected to be exploited by hackers, resulting in a loss of 116,500 rsETH, worth approximately $292 million.

Continuing to trace on-chain records, the attacker’s address received an initial 1 ETH from the mixer protocol Tornado Cash about 10 hours before the incident. Afterwards, this address called the lzReceive function on the LayerZero EndpointV2 contract, which triggered Kelp’s bridging contract to transfer 116,500 rsETH to another attacker address.

About two and a half hours after the incident, Kelp DAO’s official account confirmed the attack on X: “Earlier today, we detected suspicious cross-chain activity involving rsETH. During the investigation, we have paused rsETH contracts on the mainnet and multiple Layer2s. Our auditors are working with LayerZero and Unichain security experts to monitor the situation closely. We will keep you updated through official channels.”

Following the incident, various DeFi projects and security agencies analyzed the cause. D2 Finance’s analysis has been widely cited within the community — LayerZero Scan marked the counterparty source as Kelp DAO, indicating that the message originated from Kelp’s own legitimate deployed counterparty contract, which had previously recorded 308 message nonces. Therefore, the root cause of this attack was “the private key of the source chain was compromised.”

TinyHumans AI developer Steven Enamakel added that Kelp DAO and LayerZero’s bridging contract are protected by only a single 1/1 validator set (DVN), meaning that just one erroneous transaction from a validator could trigger a problem.

Hackers use Aave as a getaway, suspected to cause bad debts

Due to the limited liquidity of rsETH itself, the hackers’ exit strategy was to borrow through protocols like Aave, collateralize rsETH, and borrow out more liquid assets like WETH.

PeckShield Alert monitoring shows that by 4:30 a.m. today, the hacker’s address had deposited the stolen rsETH into lending protocols such as Aave V3, Compound V3, Euler, and borrowed a large amount of WETH, with total debts exceeding $236 million — among which, Aave alone accounted for $196 million, Compound for $39.4 million, and Euler for only $840k.

After the incident, Aave immediately froze the rsETH markets on Aave V3 and V4. The team later issued a statement on X: “Aave’s contracts were not attacked; this incident is related to rsETH. Freezing rsETH was to prevent new deposits and collateralized loans during the assessment. We are reviewing the rsETH borrowing activity on Aave following the attack and will share more details as soon as possible.”

Shortly after the initial statement, Aave updated the message, adding: “If this protocol incurs bad debt due to this incident, we will explore ways to cover the deficit.”

As of this writing, the exact amount of bad debt caused by this event remains unclear.

Aave’s direct competitor Spark’s strategic director monetsupply.eth said that if rsETH trades at a 19% discount (the stolen amount accounts for 19% of total rsETH supply), Aave could face over $100 million in bad debt due to high-leverage cycle borrowing.

However, Marc Zeller, founder of the governance team Aave Chan Initiative (ACI), which is a key part of the Aave ecosystem and announced he will leave Aave in July due to governance disagreements, offered a different perspective. Zeller initially advised users to quickly withdraw WETH from Aave V3 to avoid losses and confirmed that the USDC and USDT markets on Aave are unaffected, replying to a user’s speculation that “bad debt could reach billions,” with “much less than that.”

But Zeller also mentioned that it’s time to test Umbrella in a real production environment. Umbrella is Aave’s automated safety module — essentially a fund pool that covers bad debts, where users can deposit assets for higher incentives. However, when the protocol suffers losses, this pool also bears potential losses.

Aave protocol data shows that currently, Umbrella holds about $50 million worth of WETH to cover potential bad debt from this incident, but it’s uncertain whether that’s enough to fill the gap.

Andre Cronje stated that Aave has no mechanism to subsidize user losses, as doing so could trigger a run. Currently, Aave holds about $7 billion in ETH and roughly $100 million in withdrawal capacity, so the overall impact of this incident is limited.

Following this event, AAVE’s price plummeted nearly 10% in the short term, currently trading at around $104.6 USDT.

Another billion-dollar security incident in April

This is not the first major security event this month.

On April 1, the Solana ecosystem derivative trading protocol Drift Protocol was attacked, losing up to $280 million (see “April Fools? Drift Protocol stolen over $280 million, possibly the second-largest DeFi hack on Solana ecosystem”).

Later, Drift Protocol blamed “North Korean hackers” for the theft. Fortunately, institutions like Tether promised to inject $147.5 million for user compensation, giving users some hope for claims.

Just over ten days later, a larger-scale hacking incident occurred again. How will this end?

Is there still a safe place in DeFi?

Security issues in DeFi are worsening.

On one side are ongoing hacker attacks; on the other, persistent security threats from AI tools like Mythos (see “Odaily Exclusive: Yu Xian on Anthropic’s nuclear-level new model leak — how does it affect crypto security and defense?”). For DeFi users, the previous approach was to concentrate funds into well-audited, reputable top protocols. But now, even top-tier protocols like Aave, which are perceived as less likely to have issues, are indirectly affected. Where can users move their funds now?

Personally, I currently advise against leaving large amounts of funds on-chain. If necessary, be sure to diversify and isolate your positions.

As of this writing, many details about this incident remain unclear. Odaily will continue to follow the developments, please stay tuned.