"$10 Billion Evaporates" DeFi Collapse Fear... KelpDAO Hack Shakes Market Confidence

▲ Virtual assets, hacking, cryptocurrency security/AI generated image

The decentralized finance (DeFi) market is facing a severe crisis of confidence in the aftermath of a major security incident. Billions of dollars have flowed out in a short period, leading to a rapid contraction of the overall market.

According to virtual asset specialized media BeInCrypto on April 21 (local time), approximately $293 million worth of assets were lost in just 46 minutes due to a hack on KelpDAO's LayerZero-based bridge. The 116,500 rsETH stolen in the attack was used as collateral in the Aave protocol, and this process rapidly spread fear throughout the market.

Aave, which was directly hit, saw its total deposits plummet from the original $26.4 billion to around $18.6 billion, with approximately $8 billion withdrawn in a single day. The attacker borrowed a large amount of Ethereum using the stolen assets as collateral, resulting in a significant amount of bad debt remaining in the protocol.

The current estimated exposure of Aave's bad debt ranges from approximately $124 million to a maximum of $230 million. Aave immediately froze the rsETH markets on v3 and v4 to prevent further damage, but it was not enough to halt the deterioration of investor sentiment. Major institutional funds also rapidly exited. Abraxas Capital withdrew approximately $392 million, and MEXC exchange also recovered $431 million. The price of Aave's governance token, AAVE, also showed a sharp decline, falling by nearly 20% in about a day.

The repercussions were not limited to a specific protocol. The total value locked (TVL) in DeFi as a whole also decreased by nearly $10 billion, leading to a contraction of the market itself. Data shows that Morpho saw a roughly 9% decrease in fund inflows, Sky a 4% decrease, and a chain reaction occurred where even Solana-based Jupiter Lend, which was not directly related to this incident, saw about 8% of its funds withdrawn.

The industry views this incident as another revelation of the vulnerabilities in cross-chain bridge structures. The possibility that KelpDAO did not sufficiently apply key security settings has been raised, and this is interpreted as a warning signal for all projects using similar structures. Indeed, some analyses have shown that many LayerZero-based applications maintain similar security settings.

Currently, the market has begun a comprehensive re-evaluation of its security systems. Aave is working with service providers to review solutions for handling bad debt and is discussing response scenarios, including loss-sharing structures. Simultaneously, major assets are also showing increased volatility due to the weakening of investor sentiment.

The market views this incident not as a simple hacking event but as the realization of structural risks. The larger problem than the quantifiable damage is the erosion of trust. Investors have begun to demand security and operational stability as their top priorities over technological innovation.

Industry recovery is expected to take a considerable amount of time. Large-scale asset outflows could also negatively impact institutional fund inflows. KelpDAO and LayerZero are showing differences in their positions regarding accountability, and specific compensation plans have not yet been presented. This incident stands as an example of the consequences of prioritizing expansion over security.

*Disclaimer: This article is for investment reference only, and we are not responsible for investment losses based on it. The content should be interpreted for informational purposes only.*