Kelp DAO Hack: Ethena, ether.fi and 10+ other DeFi protocols sever LayerZero cross-chain bridge connections, causing AAVE and ZRO to plummet by over 20% in a single day.

At midnight tonight (19th), the KelpDAO rsETH cross-chain bridge was exploited by hackers who successfully obtained 116,500 rsETH (approximately 18% of the circulating supply), with a total value of approximately $292 million. The impact of this incident on the entire DeFi ecosystem continues to expand.

Freezing rsETH related markets and treasury

The first to be affected are protocols that interact with rsETH assets.

Aave V3 and V4, SparkLend, Compound, Lido, and Fluid immediately froze their rsETH-related lending markets or treasury holdings after the attack, cutting off rsETH liquidity on the lending side, but the damage had already been done.

After succeeding, the attackers deposited the stolen rsETH as collateral in a DeFi protocol and borrowed WETH. Since the underlying assets of the collateralized rsETH were no longer supported, this created systemic bad debt. Aave faced nearly $200 million in bad debt pressure, Compound approximately $39.4 million, and Euler approximately $840,000.

Unplug LayerZero OFT

The aftermath of the incident also affected LayerZero's OFT (Omnichain Fungible Token) cross-chain standard. This mechanism allows the same token to flow seamlessly across 20+ chains, but the shared trust infrastructure also means that if one point fails, the entire chain will be shaken.

Several protocols have chosen to directly sever their connection with LayerZero OFT, emphasizing that they have no direct exposure to rsETH and that the suspension is a precautionary measure, with resumption expected in the short term.

This batch of protocols includes: Ethena, Lombard, Euler Labs, TRON DAO, ApeCoin/ApeChain, ether.fi, mETH Protocol, Solv Protocol, MOCA Foundation, and River, totaling more than 10 protocols that have collectively shut down.

Market chain severely hit

Panic was reflected in cryptocurrency prices, with tokens of related protocols experiencing significant drops:

• ZRO (LayerZero) is currently trading at $1.57, and AAVE is currently trading at $92.07. Both have fallen by more than 20% in the past 24 hours, making them the hardest hit.
• LDO (Lido) is currently trading at $0.37, down 12.11%.
• COMP (Compound) is currently trading at $24.20, down 5.56%.
• …

LayerZero OFT, capable of deploying rsETH on 20+ chains, was intended to amplify liquidity; however, this attack revealed the downside of shared cross-chain infrastructure: the failure of a single verification layer can cause ripples that simultaneously impact all protocols that use the same standard.

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