KelpDAO Sues LayerZero Over $292M rsETH Exploit

Evercrest Technologies, the company behind KelpDAO, has filed a civil claim in British Columbia against LayerZero Labs, two related entities and co-founder Bryan Pellegrino over the April 18 exploit of 116,500 rsETH, valued at about $292 million. The claim alleges negligence, negligent misrepresentation and defamation, and seeks damages including aggravated and punitive damages.

The filing says LayerZero reviewed and endorsed the Unichain bridge’s 1-of-1 decentralized verifier network configuration. Evercrest alleges LayerZero wrote on Feb. 2, 2024, that there was “no problem” with the default setup, and directed it on March 21 to use the same configuration as another bridge. It says LayerZero did not warn that relying on a single verifier posed a security risk or recommend multiple DVNs.

Why it matters

The lawsuit turns on who was responsible for assessing and communicating the risks of a bridge security configuration. Evercrest says LayerZero described its DVN infrastructure as backed by redundancy, monitoring and alerts, and represented that a compromised verifier could at most fail to verify a message correctly. The claim alleges an attacker gained access to LayerZero’s security infrastructure after using social engineering to install malware on a developer’s computer.

Evercrest also says LayerZero had warned another developer, USDT0, about risks tied to default DVN configurations before the exploit. Those allegations, along with the parties’ competing accounts of whether the setup followed LayerZero’s recommendations, are central to the dispute. Pellegrino called the claim “meritless” and said he would defend himself.

Market impact

KelpDAO says the exploit disrupted its stablecoin plans, and that its sbUSD product was later sunset. It has also begun migrating rsETH to an alternative cross-chain security standard. The company says users have withdrawn more than $650 million in assets since the attack, underscoring the potential impact of bridge-security failures on user confidence and protocol liquidity.