Last night (April 18, around 17:35 UTC) DeFi saw the biggest attack of the year. Quick summary below.

What happened?

The attacker drained roughly 116,500 rsETH from Kelp DAO's LayerZero-powered bridge — about $292 million in value, representing around 18% of rsETH's circulating supply. The drain was executed via a call to the lzReceive function on LayerZero's EndpointV2 contract. In other words, the attacker manipulated LayerZero's cross-chain messaging layer into believing a valid transfer request had arrived from another chain, triggering an unauthorized release.

The attacker's wallets had been pre-funded via Tornado Cash's 1-ETH pool — the classic obfuscation tactic.

Spillover into Aave

This is where the real damage lies. The attacker didn't stop at the stolen rsETH; the tokens were deposited as collateral on $AAVE V3, and a substantial volume of Wrapped Ether was borrowed against them. But the rsETH was now effectively "empty" — no real backing — meaning Aave was left holding debt that will not be repaid. The incident extended to Compound V3 and Euler as well; the attacker consolidated around 74,000 $ETH and generated more than $280 million in bad debt across protocols.

This is the worst-case scenario of what DeFi calls "composability": a vulnerability in one protocol becomes an instant liquidity problem in others.

Protocol responses

Aave froze rsETH markets on V3 and V4, clarifying that Aave's contracts had not been exploited and that the issue originated from rsETH itself. Stani Kulechov noted that rsETH has no borrowing power on Aave and that the freeze was intended to give Kelp room to investigate. SparkLend and Fluid took similar steps; SparkLend reported zero rsETH exposure. Lido paused deposits into earnETH, which carries rsETH exposure — but stressed that stETH and wstETH are completely unaffected. Ethena temporarily shut down its LayerZero bridges as a precaution.

On the Kelp DAO side, the emergency multisig executed the "pauseAll" function; the Deposit Pool, withdrawal module, oracle and rsETH token contract were all halted. The attacker's two follow-up drain attempts at 18:26 and 18:28 UTC (roughly 40,000 rsETH / ~$100M) failed thanks to this — otherwise total losses could have climbed closer to $391M.

Market impact and second-order risks

Once the news broke, AAVE fell more than 10%; ETH dropped about 3% in the same window. Utilization on Aave's ETH pool hit 100%, meaning lenders temporarily cannot withdraw ETH; whales began rushing to the exit.

The truly sensitive point: the drained bridge was holding the reserve backing rsETH's wrapped versions deployed across more than 20 networks. With the reserve gone, holders on L2s are now asking "is there anything behind my token?" — which can trigger panic redemptions and force Kelp to unwind restaking positions. rsETH's peg will be critical to watch through the weekend.

Context

This is Kelp's second major incident within a year — in April 2025, a bug in the fee contract caused excess rsETH minting, but there was no user fund loss in that event. It's also worth remembering that 2026 has been a rough year for DeFi broadly: the $285M Drift exploit on April 1 (attributed to North Korea-linked actors) was followed by a chain of smaller attacks on CoW Swap, Zerion, Rhea, Silo and others.

Summary line for the report: the largest DeFi exploit of the year, and a textbook example of how a vulnerability in a cross-chain messaging layer can cascade across the entire lending market through composable collateral.