Crypto lending total value locked has increased 55 percent since July, reaching approximately $56 billion. This resurgence follows a dismal second quarter when $11.33 billion exited the sector, according to figures from Galaxy.

The lending market contracted 16.78 percent in Q2, partly attributed to a crisis of confidence after the Kelp DAO hack in April. The Kelp DAO exploit involved hackers creating 116,500 unbacked rsETH, valued at about $290 million at the time. Many of these unbacked tokens were subsequently posted as collateral to borrow other assets on Aave markets.

While Aave's own smart contracts were not breached, the protocol experienced a deposit decline of around $15 billion in the days following the exploit. Aave froze its rsETH and wrsETH markets to mitigate further risk.

Stani Kulechov, founder and chief executive of Aave Labs, said security is now a primary concern. "Security can't stop at the smart contract," Kulechov said. Traditional security reviews often "missed the risk sitting in the bridges, verifier networks and other infrastructure an asset depends on." Aave has since introduced quarterly reviews for every asset.

Spark, another DeFi lender, began phasing out rsETH on its SparkLend platform in January, prior to the April Kelp exploit. Spark chief executive Sam MacPherson said the decision followed an assessment that the asset's low usage and revenue did not justify the additional risk of supporting it. MacPherson said the Spark team reviews governance design, operational security, collateral quality, liquidity management and dependencies across the wider ecosystem.

Thomas Wu, chief financial officer of Bitcoin-backed lender Ledn, highlighted the expanded attack surface. "Every wrap bridge and oracle between the lender and the underlying asset is another place a loan can go wrong," Wu said.

Sid Powell, co-founder and chief executive of crypto credit platform Maple, said "serious lenders" should operate under the assumption that a borrower can fail at any time and build their risk management backward from that premise.