Crisis of confidence: $9 billion withdrawn from the largest cryptocurrency lending platform

Users of Aave, a cryptocurrency lending platform, have withdrawn about $9 billion from the project. The outflow of funds was triggered by hackers who placed $200 million worth of stolen rsETH token on the platform as collateral and borrowed about $236 million in more liquid tokens, essentially creating a "budget hole" for Aave, Bloomberg writes.

On Saturday, hackers stole 116,500 rsETH tokens worth about $300 million from the little-known Panamanian crosschain bridge Kelp DAO, a crypto project that enables the transition of cryptocurrency between different blockchains.

This triggered a crisis of confidence among investors in the decentralized finance sector: users began withdrawing billions of dollars from the largest DeFi lending platform, Bloomberg reports. The total value of invested cryptocurrency assets on Aave collapsed by more than a third to $17.5 billion. Depositors fear that the platform could have been virtually worthless collateral, Apollo Crypto portfolio manager Pratik Kala explained to Bloomberg.

Panamanian crypto project Kelp DAO has suspended operations while it investigates the circumstances of the theft. According to the developer of the hacked LayerZero protocol used by Kelp DAO, North Korean hackers are likely behind the attack.

Aave has also frozen rsETH markets on its platform. On Sunday, it said on social network X that it estimated the rsETH token circulating on the Ethereum blockchain is still fully secured, but the restrictions will remain in place as a precautionary measure. Many Aave users, however, have opted to simply withdraw their funds from the platform, as it is unclear who will ultimately be responsible for potential losses, Kala said. It was essentially the DeFi equivalent of a classic bank raid, he added.

"Depositors are fleeing because Aave got a hole it didn't create itself," says the manager, "Investors have triggered the instinct: withdraw money first and ask questions later.

According to industry project DefiLlama, across all DeFi lending protocols, the cumulative value of invested assets fell by about $13 billion in 48 hours - suggesting the hit to trust went far beyond Aave alone, Bloomberg writes. One such platform, Morpho, recorded outflows of more than $1 billion, although its CEO Paul Frambaugh said Sunday that its rsETH-backed borrowing volume was minimal.

This article was AI-translated and verified by a human editor