Kelp DAO Sues LayerZero and CEO Over $292 Million rsETH Bridge Exploit

Evercrest Technologies, the operator of liquid restaking protocol Kelp DAO, claims cross-chain infrastructure provider LayerZero approved a single-verifier security setup that allowed attackers to drain 116,500 rsETH—worth $292 million at the time—from its bridge on April 18, 2026. LayerZero and its chief executive, Bryan Pellegrino, counter that Kelp DAO independently downgraded its bridge to a 1-of-1 verification model, creating the single point of failure that permitted a forged message to mint unbacked tokens. The dispute over who bears responsibility for the largest decentralized finance exploit of the year has now moved from technical post-mortems to the Supreme Court of British Columbia.[1][4]

The vulnerability stemmed from how cross-chain bridges confirm transactions between networks. LayerZero operates as a messaging layer, relying on Decentralized Verifier Networks (DVNs) to attest that assets are locked on a source chain before they are released on a destination chain. According to LayerZero's May 2026 incident report, the breach began on March 6 when an attacker—later linked to North Korea's Lazarus Group—socially engineered a LayerZero developer to steal session credentials. This access allowed the attackers to compromise internal remote procedure call (RPC) nodes.[1][4]

On April 18, the compromised nodes fed false blockchain data to the bridge. Because the Kelp DAO bridge to Unichain relied on a single DVN operated by LayerZero, there was no independent secondary verifier to cross-check the data. The lone verifier approved a forged message indicating that 116,500 rsETH had been burned, prompting the Ethereum smart contract to release the equivalent funds. A second attempt to drain an additional 40,000 rsETH, worth roughly $95 million, failed when Kelp DAO paused its contracts 46 minutes after the initial breach.[3][4]

In a civil claim filed on September 24, 2026, Evercrest Technologies accuses LayerZero and Pellegrino of negligence, negligent misrepresentation, and defamation. The lawsuit alleges that LayerZero reviewed and endorsed the 1-of-1 DVN deployment in writing between February 2024 and January 2025. Kelp DAO claims LayerZero explicitly told them there was 'no problem' with the default configuration and even directed them to copy the setup of another single-verifier bridge, while allegedly warning a different developer about the risks of that exact configuration.[1]

LayerZero disputes that characterization, maintaining that its standard guidance requires verifier diversification. In public statements following the attack, the company stated that Kelp DAO had initially deployed a multi-DVN setup before manually downgrading to a single verifier. Pellegrino has publicly rejected the lawsuit's premises. "The claim continues to be meritless," Pellegrino wrote in a September 25 statement. "I will meet them in Vancouver and defend myself accordingly."[1][4]

The $292 million loss immediately rippled through the broader decentralized finance ecosystem. The attacker quickly deployed the stolen rsETH as collateral to borrow real assets on lending platforms like Aave, forcing those protocols to absorb significant market stress and estimated bad debt. In the months following the exploit, users withdrew more than $650 million from Kelp DAO's ecosystem, reflecting a sharp decline in confidence.

The technical disagreement has prompted a broader reassessment of cross-chain security models. Following the April incident, Kelp DAO migrated its rsETH bridge infrastructure to Chainlink's Cross-Chain Interoperability Protocol (CCIP). They were not alone; by early August 2026, decentralized finance projects representing approximately $14.5 billion in total value locked had announced similar migrations away from LayerZero's architecture.[4]

The British Columbia lawsuit represents a pivotal test case for liability in decentralized infrastructure. Historically, losses from smart contract exploits or compromised private keys have been treated as assumed risks by users and protocol operators. By pursuing damages in civil court, Evercrest Technologies is asking a traditional legal system to determine the boundary between a software provider's responsibility to secure its own nodes and a client's responsibility to configure redundant safety checks.