In the aftermath of a $292 million exploit, Aave and several prominent crypto firms have launched a collaborative effort, dubbed 'DeFi United', to restore stability to decentralized finance (DeFi) markets. The initiative aims to replenish the collateral backing of rsETH, a yield-bearing ether (ETH) derivative token at the center 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 move is designed to reduce the shortfall in rsETH backing and prevent forced liquidations across lending markets.
EtherFi has also proposed a 5,000 ETH plan to 'protect users and prevent bad debt' across DeFi, while Aave's founder, Stani Kulechov, has pledged a 5,000 ETH contribution. 'Aave is my life's work, and we are working tirelessly to find the best possible outcome for users,' Kulechov stated, emphasizing his commitment to resolving the issue and normalizing market conditions as soon as possible.
The 'DeFi United' initiative comes in response to the largest crypto exploit of the year, which has sent shockwaves through DeFi lending markets. The incident occurred due to a vulnerability in KelpDAO's integration with LayerZero, allowing an attacker to mint 116,500 unbacked rsETH tokens. Instead of selling the tokens, the attacker used nearly 90,000 rsETH as collateral to borrow approximately $190 million in ETH and other assets across Ethereum and Arbitrum, leaving Aave with impaired collateral and triggering a rush of deposit withdrawals. The total value of assets on Aave plummeted by $10 billion following the incident, with an estimated total shortfall of over 112,000 rsETH, according to Aave's incident report.
Prior to the 'DeFi United' initiative, some early containment efforts had been made, including the freezing of 30,766 ETH, worth around $71 million, by Arbitrum's security council. However, the remaining stolen funds were bridged and swapped into bitcoin via Thorchain, complicating recovery efforts. The current focus is on stabilizing the system through a coordinated bailout, aimed at recapitalizing rsETH and mitigating losses, rather than attempting to recover the stolen funds.