Wajahat Mughal

$290 Million Dollars Gone. What Happens Next?

This period marks what is described as potentially the worst in DeFi's history, primarily due to the recent KelpDAO exploit and its widespread impact across the DeFi ecosystem, particularly affecting Aave. KelpDAO, a liquid restaking protocol with over $1.5 billion in Total Value Locked (TVL), suffered an exploit resulting in an estimated $300 million loss. The exploit stemmed from an issue with LayerZero's DVN, a node responsible for KelpDAO's mint and burn mechanism, which was improperly configured. This allowed an exploiter to gain control of a significant amount of rswETH, KelpDAO's issued Liquid Restaking Token (LRT). The exploiter then used this rswETH on Aave and other money markets as collateral to borrow ETH, as there was insufficient liquidity to sell the rswETH directly. This action led to hundreds of millions of dollars in bad debt, especially on Aave.