LayerZero Fault Cited After $292M Kelp DAO Bridge Hack

On April 18, Kelp DAO’s LayerZero-powered cross-chain bridge lost 116,500 rsETH, roughly $292 million, after an attacker executed a compromised cross-chain transaction. The exploit involved poisoned RPC nodes and a denial-of-service event that led to an illegitimate message being accepted by the bridge’s verification system.

LayerZero reported that the attacker likely gained access to the list of RPC nodes used by LayerZero Labs’ decentralized verified network (DVN), poisoned two of those nodes and launched a DDoS attack to force the DVN to accept a fraudulent cross-chain message and sign an illegitimate transaction. LayerZero criticized Kelp DAO’s single-node DVN configuration and wrote, “LayerZero and other external parties previously communicated best practices around DVN diversification to Kelp DAO.” The company added that Kelp had been advised to diversify its DVN setup.

Kelp responded by noting the 1-of-1 DVN configuration is the default documented configuration for new OFT deployments and that the setup was confirmed during its expansion to a layer-2 network. Kelp wrote that it has paused relevant contracts, blacklisted wallets tied to the attacker and is assessing how to resume the protocol while working to establish a shared account of what happened.

The attacker moved a large portion of the stolen rsETH into Aave V3. Aave’s incident report shows 89,567 rsETH, about $221 million at the time, were supplied as collateral. The exploiter borrowed 82,650 WETH and 821 wstETH, leaving those positions with very low health factors. Aave modeled two loss scenarios because Kelp has not published an official loss-allocation or recovery plan.

In the first scenario, losses are socialized uniformly across chains. Aave projects about 112,204 rsETH would dilute supply equally, producing a 15.12% depeg and roughly $123.7 million in bad debt. Aave’s report notes that “Ethereum Core absorbs the largest absolute loss ($91.8M), but its WETH reserve is deep enough that the shortfall remains at 1.54%.” Mantle would face the largest proportional shortfall at 9.54% in that scenario.

The second scenario confines losses to layer-2 rsETH markets while mainnet rsETH remains fully backed. Under that outcome, L2 collateral would face a 73.54% haircut, generating about $230.1 million in bad debt across L2 WETH markets, including Mantle, Arbitrum and Base.

Aave said its WETH Umbrella, holding about $54 million, could act as an initial backstop under the uniform-socialization scenario but would not be triggered if losses are isolated to L2. The protocol also reported the Aave DAO holds roughly $181 million in assets and has received commitments from ecosystem participants to help cover potential shortfalls.

LayerZero and Kelp have indicated they will hold further technical and governance discussions before services fully resume. Decentralized verified networks are designed to provide independent checks on cross-chain messages; a single-signature or single-node configuration can allow a fraudulent message to be accepted if an attacker controls nodes or routing.