Crypto lending rises 55% from Q2 lows amid heightened security concerns

crypto lending rises — Total value locked in crypto lending has surged more than 55% since July to approximately $56 billion, recovering from a major outflow in Q2 triggered by security incidents like the Kelp DAO exploit.

The sharp recovery follows a dismal second quarter where about $11.33 billion fled the sector, partly due to fallout from April’s Kelp DAO hack. That attack, which created unbacked rsETH tokens later used as collateral on Aave, demonstrated how risks can cascade across interconnected protocols, even when a specific platform’s own contracts remain unbreached.

Aave Labs founder Stani Kulechov told Cointelegraph that the incident has forced a fundamental shift in risk assessment. “Security can’t stop at the smart contract,” Kulechov said, noting that protocols must now evaluate the security of underlying bridges, oracles, and issuers for every accepted collateral asset. Aave now conducts quarterly reviews of all supported assets and has begun winding down support on networks that fail to meet its chain-level standards.

Industry executives emphasized that despite the resurgence, human error and dependencies on external infrastructure remain critical vulnerabilities. Spark CEO Sam MacPherson noted his protocol had proactively phased out rsETH support months before the Kelp exploit due to risk-reward concerns, while SALT Lending’s Shawn Owen pointed out that key management failures and social engineering pose threats that smart contract audits cannot catch.