A single exploit against Kelp DAO's LayerZero-powered bridge has turned into the largest DeFi loss of 2026, with the attacker draining roughly 116,500 rsETH worth around $292 million at 17:35 UTC on Saturday, then pushing the stolen tokens into Aave (AAVE), Compound and Euler (EUL) to extract hundreds of millions more in borrowed WETH.
Every major Ethereum (ETH) lending market is now running emergency freezes.
How The Attacker Fooled LayerZero
Kelp's bridge relies on LayerZero's cross-chain messaging layer to mint and release rsETH across more than twenty networks.
Investigators say the exploiter fed the bridge a forged instruction that looked like a valid message from another chain, which triggered it to release 116,500 rsETH to an attacker-controlled address.
On-chain sleuth ZachXBT was first to flag the outflow and confirmed the bridge never received the matching inbound transfer that was supposed to anchor the mint.
A Bad Debt Spiral On Aave V3
Within minutes of the mint, the attacker moved the stolen rsETH into Aave V3, Compound V3 and Euler as collateral and borrowed more than $236 million in WETH across the three markets.
Because the rsETH deposited was unbacked, the lending protocols were left holding collateral against an asset that no longer represented real restaked Ether.
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Aave governance has already paused new rsETH deposits, and AAVE fell about 10% as the market priced in potential bad debt.
Twenty Chains Worth Of Stranded Wrapped Ether
rsETH circulates on more than twenty Layer 2s and sidechains, and the single-chain exploit has raised doubts about whether any of those wrapped supplies remain fully backed.
Fluid and SparkLend joined Aave in freezing rsETH markets within hours. Around 18% of the 630,000 rsETH circulating supply was lifted in one transaction, according to data cited by CoinDesk.
What You Should Watch Next
Kelp DAO's team has opened a 24-hour whitehat negotiation window and is coordinating with LayerZero on a post-mortem.
The immediate question is whether rsETH holders on non-Ethereum networks can be made whole, and whether Aave depositors absorb any portion of the bad debt.
The exploit also reopens a bigger debate inside DeFi, which is whether restaked Ether of any flavour should be accepted as blue-chip collateral at all.
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