Aave TVL plunges $6.6B after Kelp hack; AAVE token drops 16%

Aave is facing a major credibility test after a Kelp bridge exploit triggered losses on Aave. Aave TVL fell about $6.6B (from ~$26.4B on Apr 18 to nearly $20B), and AAVE dropped 16% as liquidation cascades hit the protocol. Attackers stole 116,500 rsETH (~$292M) from Kelp’s bridge and deposited that rsETH as collateral on Aave V3. They then borrowed wrapped ether (WETH) against the collateral. While Aave’s own contracts were not compromised, trackers estimate Aave-specific bad debt of about $196M (with broader positions reported around $236M across Aave/Compound/Euler). The damage concentrates in Ethereum markets: Ethereum accounts for most of Aave’s borrows, and WETH is the dominant collateral-to-loan pair. Aave said its Umbrella reserve would cover the deficit at first, then shifted to “explore paths to offset the deficit,” raising concern about whether stkAAVE holders could absorb the shortfall. Traders will watch the Aave Umbrella coverage size, the health of the rsETH–WETH collateral pair, and contagion risk to other lending protocols that accepted liquid restaking tokens. This episode underscores how bridge risks and liquid restaking tokens can translate into real borrowing losses on Aave.