JPMorgan Chase: KelpDAO Incident Leads to $20 Billion DeFi TVL Evaporation, Funds Inclined to Choose USDT for Safety

April 23 — Morgan Stanley analysts noted in a Wednesday report that ongoing DeFi exploits and sluggish growth are still curbing institutional interest in the space, led by Managing Director Nikolaos Panigirtzoglou. A recent major hack tied to Kelp DAO wiped out roughly $20 billion in DeFi Total Value Locked (TVL) in just days, the report said. The attack exploited a cross-chain bridge vulnerability: the hacker minted $292 million in uncollateralized rsETH tokens, then used them as collateral on the Aave lending protocol to borrow real ETH, resulting in ~$230 million in defaults. “The event triggered capital outflows from a liquidity pool with no direct exposure to the targeted asset, showing DeFi’s interconnected nature can be a vulnerability during adverse events,” the analyst added. LayerZero and blockchain security researchers have linked the hack to North Korea’s Lazarus Group. Some stolen funds have been frozen, while the rest are being shuffled between multiple wallets and routed through privacy protocols. Morgan Stanley also noted that crypto industry losses from hacks and vulnerabilities this year are on par with 2025. While smart contract audits have improved, cross-chain bridge security still faces challenges. Additionally, DeFi growth priced in ETH remains muted: TVL in USD has tracked the broader crypto market’s trend (rallying pre-2021, slumping in 2022, and slowly recovering), but when adjusted for price swings and denominated in ETH, TVL has stayed relatively flat. The analyst questioned whether DeFi can deliver the organic growth needed to drive broader institutional adoption. The report further stated that recent exploits have pushed capital into stablecoins, echoing how traditional investors flock to cash in uncertain times. USDT has become the go-to safe-haven tool for DeFi participants, thanks to deeper liquidity on centralized exchanges (CEXs) and more direct off-ramp access during on-chain stress — though this edge hasn’t yet translated to growth in USDT’s market capitalization.