One of the Year's Largest DeFi Heists
In the early hours of April 19, Norwegian time, the liquid restaking protocol Kelp DAO was hit by one of the most severe security breaches in the DeFi sector so far in 2026. According to information reported by DL News and confirmed by blockchain analytics firm Cyvers, approximately 116,500 rsETH tokens — equivalent to around $292 million — were drained from the protocol.
The attackers exploited a vulnerability in Kelp DAO's LayerZero-powered cross-chain bridge. By manipulating the messaging layer between blockchains, they managed to trick the bridge's smart contracts into releasing rsETH to an address controlled by the attackers — without any real collateral backing it.
How the Attack Unfolded
The newly minted, unbacked rsETH tokens were then used as collateral on major lending platforms, including Aave V3 and V4, Compound V3, and Euler. From there, the attackers borrowed real Wrapped ETH and ETH against the fictitious collateral — leaving behind what the security firm Cyvers describes as significant "bad debt" in the system.
“This is precisely the kind of event that illustrates the risk of composability in DeFi” — Deddy Lavid, CEO of Cyvers
The stolen funds, which according to Cyvers constituted approximately 18 percent of rsETH's total circulating supply, were quickly converted to ETH and sent through the mixing service Tornado Cash to hinder tracing. Cyvers states that approximately $250 million had already been converted to ETH when the report was published.
Kelp DAO Reacted in 46 Minutes
Kelp DAO alerted about suspicious cross-chain activity on social media shortly after the attack and initiated emergency measures. According to information from the protocol itself, all rsETH contracts on Ethereum mainnet and several Layer 2 networks were paused. Approximately 46 minutes after the first successful withdrawal, a multisig emergency system froze the core contracts — blocking two subsequent attempts to withdraw an additional 40,000 rsETH.
Kelp DAO states that they are actively collaborating with LayerZero, Unichain, and leading security experts to map out the exact cause of the attack. LayerZero has confirmed its involvement and announced that a joint report will be published.
Ripple Effects in the DeFi Ecosystem
The hack sent shockwaves through the DeFi sector. Aave froze its rsETH markets on both V3 and V4. Marc Zeller, founder of Aave Chan Initiative, urged users with WETH deposits on Aave V3 Core to withdraw their funds immediately.
Aave plans to use its "Umbrella backstop" system — a safety net that replaced the older Safety Module in late 2025 — to cover the loss. However, full coverage is not guaranteed, and WETH depositors may risk partial withdrawals.
Several other protocols also reacted quickly: SparkLend and Fluid froze their rsETH markets, while Lido Finance paused deposits into its earnETH product. Stablecoin issuer Ethena temporarily closed its LayerZero bridges as a precautionary measure. Fluid assured that there was no significant exposure on Layer 2, and that user funds are safe.
No Clear Compensation Plan Yet
As of the time of publication, Kelp DAO has not announced a concrete plan for user compensation. Official communications from the protocol have focused exclusively on the ongoing investigation and immediate risk mitigation measures. It is unclear what percentage of lost funds, if any, might be covered, or within what timeframe a solution can be expected.
Structural Risk in Liquid Restaking
The attack on Kelp DAO highlights a fundamental challenge in the liquid restaking sector: high composability offers great capital efficiency but also creates cascading effects when one link fails. LRT tokens like rsETH are used as collateral across multiple protocols, and a single vulnerability can quickly propagate through the entire DeFi stack.
The sector has grown rapidly — EigenLayer alone had a TVL of over $18 billion in September 2025. This makes the protocols attractive targets for sophisticated attackers.
Kelp DAO offers a bug bounty program with rewards of up to $250,000 and has conducted audits with recognized security firms. Nevertheless, the incident shows that even audited protocols with emergency stop mechanisms can be affected when the complexity of cross-chain architecture introduces new attack vectors.
Source references: DL News, Cyvers, Aave Chan Initiative (Marc Zeller), Kelp DAO official communications. Information regarding the compensation plan is currently unconfirmed by Kelp DAO.
