In the aftermath of a $292 million exploit, Aave has joined forces with several prominent crypto companies to launch a recovery initiative aimed at stabilizing the decentralized finance (DeFi) markets. The effort, dubbed 'DeFi United', seeks to restore the collateral backing of rsETH, a yield-bearing ether (ETH) derivative token that was at the center of the exploit. Aave has announced that multiple participants have already committed to supporting the initiative, with staking provider Lido Finance being among the first to pledge its support.
Lido's ecosystem contributor, Lido Labs Foundation, has proposed allocating up to 2,500 stETH, valued at approximately $5.7 million, to a dedicated relief fund. The funds will be utilized 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. Aave's founder, Stani Kulechov, has personally contributed 5,000 ETH to the cause, stating that 'Aave is my life's work and we're working nonstop to find the best possible outcome for users.' The 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, which allowed an attacker to mint 116,500 unbacked rsETH tokens. Instead of selling the tokens, the attacker deposited nearly 90,000 rsETH into Aave as collateral, borrowing approximately $190 million in ETH and other assets across Ethereum and Arbitrum.
This has left Aave with impaired collateral, triggering a rush of withdrawals as lenders scramble to retrieve their available funds. The total value of assets on Aave has plummeted by $10 billion in the aftermath of the incident. According to Aave's incident report, the total shortfall is estimated to be over 112,000 rsETH.
Prior to the DeFi United initiative, there have been some early containment efforts, including the freezing of 30,766 ETH, worth roughly $71 million, by Arbitrum's security council. However, the remaining stolen funds were bridged and swapped into bitcoin via Thorchain, making recovery more complex. 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.