Aave Slammed with $195M Bad Debt After KelpDAO Hack

Aave has suffered significant losses due to a KelpDAO cross-chain bridge hack that minted $292 million worth of unbacked rsETH tokens. These tokens were used as collateral to borrow $190 million in assets on Aave, which may never be repaid.

The attacker exploited the vulnerability and created the unbacked tokens, which were then used to take out loans from Aave. The total bad debt incurred by Aave amounts to approximately $195 million.

Aave has frozen affected markets and is raising $200 million to cover the losses. Meanwhile, SparkLend, a MakerDAO lending platform, had reduced its exposure to rsETH beforehand and absorbed $1.7 billion in deposits from users seeking safer options, doubling its total value locked.