An attacker exploited a vulnerability linked to Kelp's rsETH liquid restaking token to deposit $221 million in unbacked collateral on Aave, borrowing $190 million in WETH against it. Aave now faces between $123.7 million and $230.1 million in bad debt according to its own risk service providers. Total value locked on Aave has declined by approximately $10 billion as users withdrew capital, while SparkLend has absorbed over $1 billion in inflows from users migrating away.
For Armada's crypto repo desk, this is a critical risk calibration event. Liquid restaking tokens represent a category of collateral where underlying asset integrity depends on multiple protocol and bridge layers. Aave's loss occurred because rsETH carried a 93% LTV in eMode despite being wrapped four times from base ETH. Armada must review whether any LRTs appear or could appear in its collateral schedule and apply aggressive haircuts or outright ineligibility given the demonstrated oracle and bridge manipulation risk.