KelpDAO's $292M exploit sends DeFi into crisis while Bitcoin pushes past $78K

DeFi faced its worst weekend of 2026 as hackers, believed to be North Korea's Lazarus Group, exploited KelpDAO for $292 million through a sophisticated LayerZero bridge attack. The exploit triggered massive contagion across DeFi protocols, with total value locked dropping $14 billion in 48 hours as users rushed to withdraw funds. [Castle Labs](https://research.castlelabs.io/p/castle-chronicle-168) provides detailed analysis showing the attackers compromised two RPC nodes within LayerZero's Distributed Verifier Network while DDoS-ing remaining nodes. link">Aave bore the brunt of the fallout, losing $9.4 billion in deposits and hitting 100% utilization across core markets. [Alea Research](https://t.me/alearesearch/1439) reports the protocol faces potential losses up to $230M from the Kelp fallout, with roughly $5B in user funds frozen. Arbitrum's Security Council took the controversial step of freezing 30,766 ETH ($71M) linked to the exploit, moving funds to a governance-controlled wallet. The exploit highlighted critical vulnerabilities in cross-chain infrastructure. [Shoal Research](https://t.me/shoalresearch/13967) released a detailed autopsy showing how LayerZero's DVN architecture enabled the attack. Meanwhile, a separate $3.5M exploit hit Sui-based Volo Protocol, though the team quickly froze the affected vaults and pledged to absorb losses. [The Block](https://www.theblock.co/post/398393/sui-volo-protocol-exploited) reports the protocol successfully intercepted attempts to bridge 19.6 WBTC out of reach. The KelpDAO exploiter has begun laundering the stolen funds, with [The Block](https://www.theblock.co/post/398382/kelp-dao-exploiter-launders-thorchain) reporting $80 million in ETH moved through THORChain, causing the platform's 24-hour volume to surge to $394 million versus typical daily volumes under $35 million.

link">Bitcoin reclaimed momentum this week, rising +2.87% in the past 24 hours to reach $78,233, with the 7-day performance at +5.43%. [The Block](https://www.theblock.co/post/398407/bitcoin-78000-escapes-extreme-fear) attributes the move to short squeezes and strong ETF inflows, with the Fear & Greed Index climbing out of 'extreme fear' territory for the first time in weeks. Geopolitical developments provided additional tailwinds as Iran confirmed ceasefire talks, though [Castle Labs](https://research.castlelabs.io/p/castle-chronicle-168) notes Iran subsequently closed the Strait of Hormuz again, creating ongoing volatility. Institutional adoption accelerated as Strategy overtook BlackRock's IBIT in total Bitcoin holdings for the first time since Q2 2024. [Alea Research](https://t.me/alearesearch/1439) reports Michael Saylor's company added 34,164 BTC in its third-largest purchase ever. However, concerns persist about Strategy's sustainability, with [CoinBureau](https://www.youtube.com/watch?v=D0CXDq-4dDs) analyzing whether the company's massive Bitcoin bet constitutes a 'Ponzi scheme' given its reliance on continuous equity inflows and rising Bitcoin prices to service billions in obligations. Macro conditions remain mixed as [Empire (Blockworks)](https://www.youtube.com/watch?v=i2DRL1nSwh4) features liquidity expert Michael Howell warning that markets may be misreading late-cycle liquidity signals, with Treasury-driven dynamics and yield curve movements suggesting potential turbulence ahead despite current strength in risk assets.

link">Ethereum posted strong gains of +4.24% in 24 hours, reaching $2,405 with 30-day returns at +12.57%. The week brought significant developments for Ethereum's scaling roadmap as Base launched its Azul testnet upgrade, introducing multiproofs to advance toward Stage 2 decentralization. [The Block](https://www.theblock.co/post/398421/coinbase-incubated-base-launches-azul-testnet-upgrade-with-multiproofs-to-advance-decentralization) reports the Coinbase-incubated L2 targets mainnet deployment on May 13th, delivering increased security, a path to 1 gigagas/s throughput, and improved developer experience. Meanwhile, bullish long-term narratives gained traction as Etherealize updated its ETH price prediction to $250,000. [The Block](https://www.theblock.co/post/398372/etherealize-updates-long-term-eth-price-prediction-250000) explains the thesis centers on ETH capturing monetary premium similar to Bitcoin and gold as a store of value. [Bankless](https://www.youtube.com/watch?v=cwBtPPL_4Oc) featured an extensive discussion with Michael McGuiness and Vivek Raman on ETH as 'productive money' - a monetary asset combining store-of-value properties with the ability to compound through network activity, positioning Ethereum as the settlement layer for a tokenized economy. However, technical challenges persist as quantum computing threats loom. [Shoal Research](https://t.me/shoalresearch/13963) reports Coinbase's Quantum Advisory Council published a position paper warning that while crypto is safe today, quantum computers could break wallet signatures within the next decade, urging the industry to begin preparations now given the years required to upgrade decentralized systems.

Regulatory developments accelerated globally this week, with Russia's parliament passing crypto legislation in its first reading that would permit cryptocurrency use in foreign trade settlements while prohibiting domestic payments. [The Block](https://www.theblock.co/post/398402/russias-crypto-bill-first-reading) reports the bill represents a significant shift in Russia's approach to digital assets amid ongoing sanctions pressure. In the US, Federal Reserve chair nominee Kevin Warsh endorsed crypto's established role in finance during his confirmation hearing, stating that digital assets are already ingrained in the financial industry. [The Block](https://www.theblock.co/post/398364/fed-pick-warsh-backs-cryptos-place-in-finance-as-warren-raises-sock-puppet-concerns-in-hearing) reports Senator Warren raised 'sock puppet' concerns during the hearing, highlighting ongoing political divisions. Enforcement actions intensified as New York Attorney General Letitia James sued Coinbase and Gemini for allegedly offering illegal gambling through prediction market platforms. [The Block](https://www.theblock.co/post/398329/new-york-attorney-general-sues-coinbase-gemini-prediction-markets-licensing) details the lawsuit challenges the exchanges' licensing to offer event wagering to New York residents. Positive developments emerged as UK investors regained tax-free access to crypto ETNs through the Innovative Finance ISA route after Stratiphy secured IFISA approval. [The Block](https://www.theblock.co/post/398415/uk-investors-regain-tax-free-access-to-crypto-etns-via-innovative-finance-isa-route) reports this reopens opportunities for retail investors to hold 21Shares crypto ETNs within tax-advantaged accounts.

Traditional finance's crypto integration accelerated with GSR entering the ETF space through its Core3 fund, an actively managed multi-asset ETF tracking link">Bitcoin, Ethereum, and Solana. [The Block](https://www.theblock.co/post/398443/gsr-crypto-etf-actively-managed-multi-asset-core3-bitcoin-ethereum-solana) notes this marks the major market maker's first ETF offering amid broader crypto fund sector expansion. Prediction markets gained momentum as Kalshi eyes expansion into crypto perpetual futures trading, positioning to compete with Binance and Hyperliquid. [Shoal Research](https://t.me/shoalresearch/13961) reports the development comes as both Coinbase and Binance offer prediction market access to users. However, regulatory challenges emerged as New York's Attorney General filed suit against major exchanges over prediction market offerings. Infrastructure developments advanced with Infinite rolling out banking services powered by Thiel-backed Erebor Bank, introducing accounts supporting traditional and crypto services including ACH, wire, and stablecoin transfers. [The Block](https://www.theblock.co/post/398377/b2b-stablecoin-tech-provider-infinite-rolls-out-banking-services-powered-by-thiel-backed-erebor-bank) highlights the B2B stablecoin tech provider's expansion into comprehensive financial services. Upshift tapped Securitize Fund Services for third-party reporting to provide independent auditing and performance transparency for its onchain vaults. [The Block](https://www.theblock.co/post/398437/onchain-vault-provider-upshift-taps-securitize-fund-services-for-third-party-reporting) shows growing emphasis on institutional-grade reporting standards in DeFi.

The intersection of AI and crypto gained significant traction as a16z-backed Gensyn launched Delphi, an AI-settled information markets platform on its newly activated mainnet. [The Block](https://www.theblock.co/post/398419/a16z-crypto-gensyn-delphi-ai-settled-information-markets-platform) reports creators earn 1.5% of all market volume as fees when markets successfully settle, with [Shoal Research](https://t.me/shoalresearch/13977) noting users can create markets on any topic and trade positions on possible outcomes. Major AI developments included SpaceXAI partnering with Cursor to build advanced coding AI, with the deal including acquisition rights for $60 billion or $10 billion for collaborative work. [Shoal Research](https://t.me/shoalresearch/13969) also reports unauthorized access to Anthropic's unreleased Mythos model by a private forum group, raising security concerns in the AI space. OpenAI introduced ChatGPT Images 2.0, a state-of-the-art image model capable of complex visual tasks and precise visual generation. [Shoal Research](https://t.me/shoalresearch/13966) details improvements in instruction following, object placement, text rendering, and multi-language support, now available to all ChatGPT and Codex users. Meanwhile, DeepSeek attracted major investment interest with Tencent and Alibaba in talks to invest at a $20+ billion valuation. [Shoal Research](https://t.me/shoalresearch/13976) reports this marks the AI company's first funding round, highlighting massive valuations in the AI sector.