In the aftermath of a devastating $292 million exploit, Aave and several prominent cryptocurrency firms have launched a collaborative recovery effort, dubbed 'DeFi United', to stabilize the decentralized finance (DeFi) markets. The initiative, spearheaded by Aave service providers, aims to replenish the collateral backing of rsETH, a yield-bearing ether (ETH) derivative token at the epicenter of the hack. Aave has announced that multiple participants have already committed to supporting the effort, with Lido Finance's ecosystem contributor, Lido Labs Foundation, being the first to propose a plan to allocate up to 2,500 stETH, valued at approximately $5.7 million, to a dedicated relief fund. This fund 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 safeguard users and prevent bad debt across DeFi. Aave's founder, Stani Kulechov, has pledged a 5,000 ETH contribution, stating that 'Aave is my life's work and we're working tirelessly to find the best possible outcome for users.' The initiative follows the largest crypto exploit of the year, which 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 in the wake 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, 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 the recovery process. 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.