Kelp exploit highlights problem with non-isolated DeFi lending: Crypto execs

The contagion from the Kelp exploit could have been contained, but at the cost of capital efficiency, according to the founder of Curve Finance.

The exploit of the Kelp liquid restaking protocol shows how non-isolated lending and integrations in decentralized finance (DeFi) can cause broader ecosystem contagion, according to crypto industry executives and blockchain security firms.

Non-isolated lending on DeFi platforms, including earlier versions of the Aave lending protocol, exposes users to risks from all the various tokens used as collateral on the platforms, according to Michael Egorov, founder of the Curve Finance DeFi protocol.

Kelp was the target of a cyber attack on Saturday, causing the platform to pause smart contracts for its restaking token (rsETH) while it moved to investigate the attack that left the platform drained of about $293 million.

DeFi teams should also vet prospective digital assets to ensure that tokens do not feature single points of failure or attack surfaces before approving tokens as lending collateral on their platforms, Egorov said in an email.

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