DeFi users pull $10 billion out of the market as $292 million exploit sparks bank-run optics

A $292 million exploit at KelpDAO set off a broad retreat across decentralized finance over the weekend, draining roughly $10 billion across the DeFi industry and forcing multiple protocols to freeze markets tied to rsETH.

The breach began late Saturday when an attacker drained about 116,500 rsETH from KelpDAO’s cross-chain bridge. The stolen tokens were worth about $292 million at the time, according to CryptoSlate data.

KelpDAO issues rsETH to users who deposit ETH into its liquid restaking system. The platform then deploys those ETH through the restaking platform EigenLayer to generate additional yield on top of standard staking returns.

KelpDAO’s loss now stands as the largest DeFi exploit of 2026 in the report, surpassing earlier attacks this year.

How KelpDAO was exploited for $292 million

rsETH circulates across the broader market via LayerZero, a cross-chain messaging network that moves instructions and assets between blockchains.

Yearn Finance core developer Banteg explained that the exploit hit the route linking Unichain to the Ethereum mainnet.

According to the on-chain analyst, the attacker pushed through a fraudulent message that the system accepted as valid, prompting the Ethereum-side adapter to release pre-funded rsETH reserves.

This route was configured as a one-of-one decentralized verifier network path without secondary verifiers that could have flagged the transaction.

Banteng stated that the malicious transaction, identified as nonce 308, was verified and delivered at 17:35 UTC.

Following the attack, the KelpDAO’s emergency multisignature wallet froze the protocol’s core contracts. This blocked two further attempts that together could have removed another roughly $100 million in rsETH.

The initial stolen funds were moved through Tornado Cash, obscuring the trail before the protocol’s response could contain the damage.

Meanwhile, the drained reserve-backed wrapped rsETH circulated across secondary networks, including Base, Arbitrum, Linea, Blast, Mantle, and Scroll. Once those reserves were depleted, users holding rsETH off Ethereum faced rising uncertainty around redemption and backing.

And that pressure quickly fed into the rest of the market.

Aave takes the heaviest blow

The most severe aftershock hit Aave, the largest crypto lending platform, where the attacker allegedly deposited the stolen rsETH as collateral.

During the attack window, Aave’s pricing oracles continued to read rsETH near its normal peg, allowing the protocol to issue 106,467 ETH against the compromised collateral.

That left the platform facing a potential $236 million bad-debt exposure and triggered a rush for the exits.

Data from DeFiLlama showed Aave’s total value locked dropped from more than $26 billion to about $20 billion as users withdrew funds.

The drawdown amounted to one of the sharpest pullbacks on the platform in recent memory and turned a bridge exploit into a liquidity event for the largest lending venue in DeFi.

On-chain analysts revealed that large ETH holders on the DeFi platform accelerated the move.

For context, TRON founder Justin Sun reportedly withdrew more than 65,580 ETH, worth about $154 million, in a single transaction.

As these kinds of withdrawals mounted, Aave’s ETH utilization rate reached 100%, leaving all available Ether on the platform either borrowed or withdrawn.

Meanwhile, the pressure also spilled into Aave’s market price. The AAVE governance token fell more than 18% as traders priced in the possibility of deeper losses.

This was exacerbated by heavy sales from large AAVE wallets. Blockchain analytics platform Lookonchain reported that one entity identified as smaugvision sold more than 20,000 AAVE for $2.06 million, while another investor sold a similar amount for $2.05 million. A third whale sold nearly 19,700 AAVE in exchange for wrapped Bitcoin and ETH.

In response to these issues, Aave froze the rsETH markets on both V3 and V4. The platform's founder Stani Kulechov stated on X:

Contagion spreads across DeFi

Apart from Aave, other DeFi protocols also experienced significant withdrawals from their platform due to the attack.

0xngmi, the pseudonymous founder of DeFiLlama, reported that the incident triggered a $10 billion drop across the DeFi sector. This includes the $6 billion exodus from Aave.

Notably, data from DeFiLlama show that TVL for DeFi protocols has dropped 10% from around $99 billion on April 18 to $89 billion as of press time.

Meanwhile, the incident has also led several DeFi platforms to move quickly to reduce their exposure to the embattled rsETH token.

DeFi analyst Ignas flagged eight additional DeFi protocols, including Lido, SparkLend, Fluid, Compound, and Euler, which froze their rsETH lending markets.

He added:

Meanwhile, Ethena, the developer of the synthetic USDe dollar, temporarily suspended its LayerZero bridges as a precaution, while stating that it had no exposure to rsETH.

Those moves reflected how widely rsETH had been embedded across DeFi as it was deeply used in lending markets, vault products, and collateral strategies that depended on smooth cross-chain transfers and confidence in reserve backing.

As that confidence weakened, protocols moved to ring-fence risk before further withdrawals or price dislocations could deepen the damage.

The strain also exposed the speed at which capital can move once collateral quality comes into question. A bridge exploit at one venue was enough to send shockwaves through multiple markets within hours, pushing platforms to suspend activity even when their own contracts had not been directly breached.

Crypto community calls for solution to DeFi bridge hacks

Jonathan Man, the Head of Multi-Strategy Solutions & DeFi Strategies at Bitwise, said:

Meanwhile, the KelpDAO exploit also prompted broader discussion about how lending protocols and token issuers can limit the damage from hacks targeting bridged or thinly traded assets.

Keone Hon, co-founder of Monad, said pooled lending protocols should consider imposing rate limits on how quickly an asset can be deposited and used as collateral.

Under that model, an asset with a current circulating supply of $100 million and a formal cap of $300 million would not be allowed to jump straight to the full cap in a single burst. Instead, the supply allowed into the system would rise gradually over a set period, such as 10 minutes or a few hours.

Hon said that approach would narrow the available exit paths when an exotic asset is exploited, especially in cases involving infinite-mint bugs.

He argued that the size of the loss is often determined less by the mint itself than by how much of the compromised asset can be offloaded into lending venues or other liquid exits before markets react.

In that framework, large lending protocols become the main release valves because decentralized exchange liquidity is often too limited to absorb a major exploit.

He added that asset issuers should also have an interest in tighter caps, particularly when they issue receipt tokens with delayed redemption. In those cases, the issuer is not necessarily exposed to immediate redemption pressure from an attacker, but still benefits when downstream exit routes remain constrained.

Hon pointed to the Hyperbridge DOT exploit and the Resolv incident as examples where losses stayed below more catastrophic levels because the available paths for exiting the hacked asset were limited.

Guy Young, founder of Ethena, endorsed that view and said issuers should consider adding rate limits at the mint and redemption layer, as well as custom throttles on top of LayerZero’s OFT standard.

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