How KelpDAO's $290M Exploit Nearly Killed DeFi | Stani Kulechov & Mike Silagadze

**Jason Yanowitz** (0:00)
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All right, everyone, welcome back to Empire. We've been talking about KelpDow and Aave, all the craziness that's unfolded over the last two weeks, DeFi United, the bailout, whatever you want to call it. I've been talking to Stani on the side, and Mike, obviously, EtherFi stepped up in a huge way, so decided to bring them both on the podcast. We've got Mike, who's the CEO and co-founder of EtherFi, as well as Stani, who many of you already know, I'm sure he's been on the podcast many times, but founder of Aave, so Stani, Mike, welcome, guys.

**Mike Silagadze** (1:00)
They've written me here.

**Jason Yanowitz** (1:01)
Yeah. How much sleep have we gotten collectively in the last two weeks?

**Mike Silagadze** (1:07)
More in the last few days. I think it seems like the worst is over, and the ecosystem kind of pulled through, so it's been better in the last little while, but yeah, it was an intense week, for sure.

**Stani Kulechov** (1:22)
Yeah, I think the first day out of the breach exploit, like the first few days, was probably the most difficult.
You know, you couldn't really sleep much for various reasons, but also because we were sort of against the time. Obviously, now it's a little bit more easier, but there's still a good amount of work to do, so yeah, it's running still low.

**Mike Silagadze** (1:49)
Yeah, the thing that surprised me, I guess, and bothered me is, at least to me, it was so obvious immediately within a matter of hours that this was an existential threat to DeFi. Like, it was just the sort of like step one, two, three, four. I was like, all right, game over. Like, this is it.
And so it was so clear that, like, okay, people needed to spring into action, immediately start addressing this thing, or else it was going to spiral. And I think, in fact, if it wasn't for the work that Stani and his team and some others have done, that was the default path. I don't think people recognize that, just like, without that intervention, without that effort that people put in, the default path was just a complete blow up of DeFi.

**Stani Kulechov** (2:41)
Yeah, I think not everyone really understood, sort of, like, where we were at that point in this space, because, like, you know, effectively this wasn't about Aave. It was about DeFi as an ecosystem in overall, and how to manage this sort of, like, big capital movements that are done also quite programmatically. And I think that the protocols involved and the teams involved typically are really diligent. We work with them on a day-to-day basis. But when something like this happens, where you sort of have a remote dependency, where things happen, and it creates an attack vector and affects the whole space, that's sort of where things need... Everyone needs to sort of, like, move and figure out how to... What are actually the next steps? Because that's the first thing to figure out. And I think to Mike's credit, Mike was there at the very beginning and realized, sort of, like, aware, you know, what are the potential paths that things could go, including the extreme first-case scenarios.
And realized that how important this is for DeFi. And that wasn't the case for everyone to understand at the first glance, but it sort of, like, helped quite a lot during the process.

**Jason Yanowitz** (4:08)
Yeah, Mike, can you maybe walk us through why this was such a... I'm reading your tweet here. It says, you know, FTX, he said, you know, we committed 5K ETH to the Kelp Hack Recovery Fund because we thought there was a real risk that this could have killed DeFi. FTX would have looked small in comparison. I'm not sure if that's just a bold statement to get your tweet, you know, more viral, or if that's like, if you genuinely believe that. But if you, I'd really love to hear the thought process behind it.

**Mike Silagadze** (4:34)
Yeah, you know, it's pretty straightforward, honestly. I 100%, you know, stand by that. You know, I'm sure lots of people have read about kind of the high level events took place. But the basic idea is, you know, CALP had a certain structure to their cross-chain, their bridging setup. They, of course, were using layer zero, but they had a certain structure they decided on. And that was exploited by, you know, VPRK, North Korean hackers. And so the direct impact was about 200 some million dollars that were stolen.