The $13 billion DeFi wipeout in two days, and it started with KelpDAO attack

The decentralized finance (DeFi) ecosystem is experiencing a sharp capital outflow following the weekend exploit of the KelpDAO protocol.

Leading DeFi lending platform Aave has lost $8.45 billion in deposits over the past 48 hours, driving a broader $13.21 billion decline in total value locked (TVL) across DeFi. TVL refers to the combined dollar value of crypto assets deposited across DeFi protocols, such as Aave, and is widely used as to measure liquidity and overall market activity.

Total value locked across DeFi fell from $99.497 billion to $86.286 billion, while Aave’s TVL declined by $8.45 billion to $17.947 billion over the same period, according to DefiLlama. Protocol-level data shows double-digit percentage drops across platforms, including Euler, Sentora, and Aave, with losses concentrated in lending, restaking, and yield strategies tied to the affected collateral.

The move stems from a $292 million exploit of Kelp’s bridge that allowed attackers to use stolen rsETH, a liquid re-staking token widely used in DeFi, as collateral to borrow funds on lending platforms.

Because these stolen tokens lacked legitimate collateral backing, borrowing against them created potential shortfalls for lenders. It’s similar to conning a traditional bank by depositing fake fiat and taking out loans against it, ultimately leaving the lender with bad debt.

Protocols responded by freezing affected markets, while panicked users withdrew funds, leading to a broad decline in total value locked.

Token prices have moved less sharply than deposits. The AAVE token is down about 2.5% over 24 hours, while UNI and LINK are down less than 1% over the same period, according to CoinDesk market data.

Peter Chung, head of research at Presto Research, said in a note the incident highlights risks in cross-chain infrastructure, particularly in verification systems used by bridges.

Early analysis suggests the issue may have originated in the verification layer rather than in smart contracts themselves.

Chung added that the episode also shows how interconnected DeFi protocols can transmit shocks beyond the initial point of failure, with withdrawal activity and market freezes extending to platforms without direct exposure to the exploit.