KelpDAO Bridge Exploit Shifts 116,500 rsETH, Fuels Over $200M ETH Borrowing on Aave

A large exploit tied to KelpDAO's rsETH bridge has pushed stress onto DeFi lending markets after 116,500 rsETH was moved onto Ethereum and used to unlock more than $200 million in ETH borrowing on Aave. Arkham data indicates the attacker, identified as the Lazarus Group, accessed and redeployed a significant portion of rsETH. The surge in activity coincided with user withdrawals, declining liquidity, and disruptions across major lending venues including Aave and Compound. On-chain records suggest the breach originated in the LayerZero verification flow. The attacker allegedly submitted a forged message to LayerZero verifiers, allowing them to pull 116,500 rsETH from KelpDAO's bridge adapter. The bridge contract then released rsETH on Ethereum without a valid cross-chain transfer, effectively increasing available rsETH on the network. The tokens were not newly minted, according to details cited in the report. Instead, they were drawn from existing cross-chain reserves spread across Arbitrum, Mantle, and Base, shifting previously bridged liquidity back to Ethereum and concentrating supply in one environment. After obtaining the rsETH, the attacker deposited it into Aave and borrowed more than $200 million in ETH. The move tightened liquidity as other users pulled funds. Stablecoin markets on Aave hit supply caps, limiting availability for USDC and USDT activity. Holdings data shows rsETH remains heavily concentrated on lending platforms: about 87.9% of total supply is held across Aave and Compound, with Ethereum accounting for most of Aave's share. As conditions tightened, rsETH also traded below expectations at roughly 82% of its original peg. KelpDAO is now weighing recovery options. One proposal would socialize losses across all holders, lowering rsETH value across networks. Another would aim to fully back Ethereum-based holdings while offering reduced recovery for Layer 2 users. Related: DeFi Exploits Top $775M in 2026 as KelpDAO, Drift Lead Losses Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice. Coin Edition is not responsible for losses resulting from the use of any referenced content, products, or services. Readers should exercise caution before taking any action related to the company.