In the aftermath of a $292 million exploit, Aave and several prominent cryptocurrency firms have collaborated on a recovery effort, dubbed 'DeFi United', to stabilize the decentralized finance (DeFi) market. The initiative aims to restore the collateral backing of rsETH, a yield-bearing ether (ETH) derivative token at the center of the exploit. Led by Aave service providers, the effort has garnered commitments from multiple participants, including staking provider Lido Finance, which proposed allocating up to 2,500 stETH, valued at approximately $5.7 million, to a dedicated relief fund. EtherFi has also proposed a 5,000 ETH plan to protect users and prevent bad debt across DeFi, while Aave founder Stani Kulechov has pledged a 5,000 ETH contribution.
The funds will be utilized to reduce the shortfall in rsETH backing and prevent forced liquidations across lending markets. The exploit, which occurred due to a vulnerability in KelpDAO's integration with LayerZero, resulted in the attacker minting 116,500 unbacked rsETH tokens. The attacker then deposited nearly 90,000 rsETH into Aave as collateral, borrowing around $190 million in ETH and other assets. This led to a run on deposits, with lenders rushing to withdraw available funds, causing the total value of assets on Aave to plummet by $10 billion.
The total shortfall is estimated to be over 112,000 rsETH, according to Aave's incident report. Prior to the DeFi United initiative, there were some early containment efforts, including Arbitrum's security council freezing 30,766 ETH, worth approximately $71 million, tied to the exploit. However, the remaining stolen funds were bridged and swapped into bitcoin via Thorchain, complicating recovery efforts.
The current initiative focuses on stabilizing the system through a coordinated bailout to recapitalize rsETH and mitigate losses, rather than attempting to recover the stolen funds.