How KelpDAO's Exploit Left Aave With $200M Bad Debt

Summary

The video discusses the KelpDAO exploit that led to $193M bad debt on Aave, the mechanics of the attack, the response, and implications for DeFi risk management. The panel from Blockworks analyzes the contagion, the role of looping trades, and the inadequacy of Aave's umbrella module. They also consider future of decentralized lending and concentration towards battle-tested protocols.

• Exploit used malicious cross-chain transaction to mint unbacked rsETH.
• Attacker deposited rsETH on Aave and borrowed $193M in ETH.
• Aave froze rsETH market 85 minutes after exploit.
• Utilization on ETH reached 100%, trapping lenders.
• Umbrella module with $250M was insufficient to cover losses.
• Looping trades amplified risk; 98% of ETH borrows backed by LSTs.
• Spark (Sky) removed rsETH earlier and had rate limits.
• Panel expects more centralized risk management and battle-tested protocols.