🔹The rsETH exploit and ripple effects on Aave
Get rid of the noise. Signals of what matters in crypto.
Markets recovered this week, S&P500 bouncing back hard as the Iran situation cooled down, and BTC followed along. Good to see honestly, and zooming out, BTChas held its ground pretty well over the past 1/2 months. Not rallying, sure, but on the LTF it's not looking like a dead cat either. That said, I think any escalation on the Iran side hits hard, and for some reason I don't feel like the market is pricing in the scenario where this whole thing drags on. Could be wrong, you know the meme - everything is priced in.
The rsETH exploit and ripple effects on Aave
The big story this week is the KelpDAO rsETH exploit. On April 18, someone, apparently North Korea, pulled off a pretty sophisticated attack on LayerZero's infrastructure: they identified which RPC providers LayerZero was using, compromised two of them to return fake data, and DDoSed the legitimate ones to force LayerZero to route through the corrupted ones. That let them mint unbacked rsETH and drain funds across chains.
Then the classic move: take that worthless collateral, deposit it on Aave while the price feed still looked fine, and borrow real ETH against it. By the time everything was paused, the attacker was already out with actual ETH, and Aave was left holding the bag with bad debt.
Arbitrum’s Security Council moved fast, freezing 30,766 ETH connected to the exploiter’s address. Controversial? Sure, but unlike the Thorchain situation, where the protocol basically watched hundreds of millions get laundered to BTC without blinking, this one actually made sense imo.
Aave published an incident report modeling two scenarios:
Scenario 1: losses get socialized across all rsETH holders via a ~15% haircut on the backing ratio, resulting in roughly $124M.
Scenario 2: losses are isolated to L2 rsETH only, pushing bad debt to ~$230M, with Mantle taking a 71% WETH shortfall and Arbitrum a 27% shortfall, while Ethereum mainnet rsETH stays unaffected.
Which one plays out depends entirely on how KelpDAO decides to account the losses. Meanwhile, Aave is experiencing liquidity issues - users withdrew $6.6 billion from the protocol, pushing WETH, USDC, USDT pools to 100% utilization and trapping depositors.
In response, Aave kicked off DeFi United, a coordinated effort to restore rsETH’s backing and plug the hole. Stani personally committed 5,000 ETH.
Major contributions so far:
Consensys: 30,000 ETH
Mantle: 30,000 ETH credit facility
Aave DAO: 25,000 ETH from treasury
Stani (personal): 5,000 ETH
EtherFi: 5,000 ETH
Lido: 2,500 stETH
Golem Foundation: 1,000 ETH
Crypto
USDai launched its token CHIP → USDai is a stablecoin backed by AI-generated yield strategies, trading twaords 1bn fdv now. Might be a good runner, AI-related tokens still have demand.
Tether froze $344M in USDT on Tron → fair.
Pavel Durov says TON fees dropping 6x next week → TON is genuinely underrated imo. Telegram is massive and keeps growing, the distribution is there.
Family of 5 kidnapped in France for crypto → wild. France has a problem, it’s once a week.
DeFi
MegaETH announced TGE on April 30th → 11 apps launched meeting the TGE KPI. Finally. Expect it to trade up toward Monad FDV.
Kalshi and Polymarket launched perps, at the exact same time (lol) → expanding the gambling on their platforms, makes sense , but perps need deep liquidity to actually work. Honestly not sure why neither went with Hyperliquid builder codes, would’ve been a perfect fit.
Polymarket working on a chain migration → ok, now Polygon is officially dead.
Aave launching on Solana → great to see tbh, and I guess will be part of v4.
TradFi
MicroStrategy has bought 10x more bitcoin than all ETFs combined so far in 2026 → still not sure how this reads as institutional capital coming into crypto, idk.
VC
Naval launching USVC, a closed-ended fund with exposure to xAI, Anthropic, OpenAI and others → heavily criticized as exit liquidity scheme.
"The Art of Exit Liquidity" piece on USVC → explains the structure well, not great for investors.
From Great Minds
Cobie interviewed by Threadguy → quite bullish, sees another season of euphoria coming. for what it's worth.
Delphi Digital report on ETHGas → building a real-time financial marketplace for Ethereum blockspace, basically trying to make gas structured and tradable instead of the current auction mess. A lot of engineering, could be cool.
No good farms these days.
If you found this worth your time, pass it to a friend. Means a lot. Catch you next week🫡
Disclosure: I am exposed to crypto and may own assets mentioned in this post. This article is meant for informational purposes only and should NOT be considered as investment advice. This research is independent and unrelated to my professional work. The views expressed are my own and do not reflect those of my employer. NFA