JPMorgan: KelpDAO Incident Causes $20 Billion DeFi TVL Erosion, Funds Shift to USDT for Safety

On April 23, JPMorgan analysts noted in a report on Wednesday that ongoing DeFi exploits and sluggish growth continue to limit institutional interest in the DeFi sector. The report was authored by a team led by Managing Director Nikolaos Panigirtzoglou. Analysts stated that a recent major hacking incident related to Kelp DAO has caused approximately $20 billion in total locked value (TVL) in DeFi to evaporate in just a few days. The attack involved a cross-chain bridge vulnerability, where the attacker minted $292 million worth of uncollateralized rsETH tokens and used them as collateral to borrow real ETH from the Aave lending protocol, resulting in approximately $230 million in bad debt. “This incident triggered an outflow of funds from pools that had no direct exposure to the attacked assets, indicating that the interconnectedness of DeFi can become a weakness in adverse events,” the analysts stated. LayerZero and blockchain security researchers have linked the exploit to North Korea’s Lazarus group. Some of the stolen funds have been frozen, while the remaining funds are still being transferred across multiple wallets and routed through privacy protocols. JPMorgan pointed out that losses in the crypto industry due to hacks and exploits this year are comparable to those expected in 2025. Despite improvements in smart contract audits, cross-chain bridge security remains a challenge. Furthermore, DeFi growth measured in ETH remains weak—TVL trends in USD mirror the overall crypto market, with a rapid rise before 2021, a decline in 2022, and a slow recovery thereafter; however, when adjusted for price changes and measured in ETH, TVL has remained essentially flat. Analysts questioned whether DeFi can achieve the organic growth needed to support broader institutional adoption. The report also stated that recent exploits have driven funds towards stablecoins, similar to how traditional investors turn to cash during uncertain times. USDT has become the preferred “safe haven” tool for DeFi participants due to its deeper liquidity on centralized exchanges and more direct exit routes during on-chain stress periods, although this advantage has yet to be reflected in USDT’s market cap growth.