Crypto lending has risen by 55% since July, but now has to deal with the dangers of AI assisted hacks, and risks cascading through interlinked protocols.
As the charts flip from red to green, crypto lending has seen a resurgence of interest after a particularly dismal second quarter. Figures from Galaxy show that $11.33 billion left the sector in Q2 — partly due to the crisis of confidence in lenders caused by the Kelp DAO hack in April that left users of the most trusted protocol, Aave, unable to access their ETH.
Since the beginning of July, however, total lending value locked has gained more than 55% to sit around $56 billion today. But that also means the honeypot has grown larger.
Can users trust interlinked DeFi lending protocols in the age of AI-assisted hacks, when an exploit from any one protocol can have a series of devastating effects for other protocols connected to it?
Stani Kulechov, founder and chief executive of Aave Labs, tells Magazine the problem is now top of mind. When hackers exploited a Kelp DAO cross-chain route in April, they created 116,500 unbacked rsETH (worth about $290 million at the time), and many of those tokens were posted as collateral to borrow other assets on Aave markets.
Even though Aave’s own contracts were not breached, the protocol still saw deposits fall by around $15 billion in the days after the exploit, and it had to freeze its rsETH and wrsETH markets .