rsETH Depegs to $1,723 After KelpDAO Hack

rsETH, the liquid restaked Ether token issued by KelpDAO, dropped to $1,723 on April 23 after KelpDAO was breached by suspected North Korea-linked hackers. The Arbitrum Security Council froze about $71 million tied to the exploit. Aave froze its rsETH and wrsETH reserves and set loan-to-value ratios to zero to limit losses.

Market data show rsETH fell from roughly $2,404 to $1,723 while ether traded near $2,270, widening the gap to more than $540. The token traded at a premium until April 20. Trading volume exceeded $10 million on April 18 and 19 and fell to five-figure levels by the afternoon of April 23.

Security teams and protocol operators identified possible exposure at lending and leverage platforms that accept rsETH as collateral, including Morpho, Spark and Gearbox. Several protocols paused or restricted rsETH markets to prevent forced liquidations and further contagion.

KelpDAO reported its teams are focused on protecting users and shoring up the protocol while investigators and external security firms work to trace and recover funds and assess the breach vector.

Filip Koprivec, Flare’s chief product officer, wrote that bridge security should be treated as part of collateral risk management. “Once a protocol lists a bridged asset as collateral, it is also taking on bridge risk, not just token risk,” Koprivec wrote. He called for bridge configurations to be visible to users and integrators and for routes to be diversified and subject to ongoing review.

After the exploit, Flare paused its Layerzero OFT transport rail and increased its decentralized verifier network from two to four validators-Layerzero Labs, Nethermind, Canary and Horizen. Flare plans an FAssets v1.3 upgrade that will add mint-side controls, including caps and delays. The network reported more than $440 million in total value locked and said most FXRP liquidity remains deployed.

Bridged tokens are representations of assets on another blockchain. If the bridge or a supporting contract is compromised, confidence in the token’s backing can fall and the token can trade below its peg. That loss of parity can force liquidations for borrowers using the bridged token as collateral and create strain in lending markets and liquidity pools.