In the aftermath of a devastating $292 million hack, Aave has rallied prominent crypto firms to launch a collaborative recovery effort, dubbed 'DeFi United', aimed at shoring up the decentralized finance sector. The initiative seeks to replenish the collateral backing of rsETH, a yield-bearing ether derivative token at the epicenter of the exploit. Aave has announced that multiple participants have already committed to supporting the effort, with Lido Finance's ecosystem contributor, Lido Labs Foundation, proposing to allocate up to 2,500 stETH, valued at approximately $5.7 million, to a dedicated relief fund.
This would help alleviate the shortfall in rsETH backing and prevent forced liquidations across lending markets. EtherFi has also proposed a 5,000 ETH plan to safeguard users and prevent bad debt across DeFi, while Aave's founder, Stani Kulechov, has pledged a 5,000 ETH contribution.
Kulechov emphasized his dedication to finding the best possible outcome for users, stating, 'Aave is my life's work, and we're working tirelessly to resolve this and normalize market conditions as soon as possible.' Aave plans to announce additional commitments once formalized. The DeFi United initiative follows the largest crypto exploit of the year, which sent shockwaves through DeFi lending markets.
The incident originated from a vulnerability in KelpDAO's integration with LayerZero, allowing an attacker to mint 116,500 unbacked rsETH tokens by exploiting the bridge's messaging system. Instead of dumping the tokens, the attacker used nearly 90,000 rsETH as collateral on Aave, borrowing approximately $190 million in ETH and other assets across Ethereum and Arbitrum. This left Aave with impaired collateral, triggering a deposit run as lenders rushed to withdraw available funds, resulting in a $10 billion plunge in the total value of assets on Aave.
The estimated total shortfall stands at over 112,000 rsETH, according to Aave's incident report. Prior to the DeFi United initiative, some early containment efforts were made, including Arbitrum's security council freezing 30,766 ETH, worth roughly $71 million, tied to the exploit. However, the remaining stolen funds were bridged and swapped into bitcoin via Thorchain, complicating recovery efforts. The current effort focuses on stabilizing the system through a coordinated bailout to recapitalize rsETH and mitigate losses, rather than attempting to recover the stolen funds.