Aave Faces Potential Bad Debt Risk Due to Kelp DAO Bridge Vulnerability

Aave is confronting a potential bad debt risk following a vulnerability in the Kelp DAO cross-chain bridge that allowed approximately $190 million in loans to be issued without collateral. According to PANews, a report by Aave Labs and LlamaRisk revealed that attackers exploited the vulnerability by forging cross-chain messages to release 116,500 rsETH from the Ethereum side of the bridge. Subsequently, 89,600 rsETH were deposited into Aave as collateral, enabling the attackers to borrow around $190 million in ETH and related assets. In response, Aave swiftly froze the rsETH market and set the loan-to-value ratio to zero within hours.