In response to a $292 million exploit that has significantly impacted the decentralized finance (DeFi) sector, Aave and several prominent crypto companies are collaborating on a recovery effort to stabilize the markets. The initiative, known as 'DeFi United', aims to restore 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 being the first to propose a plan, allocating up to 2,500 stETH (worth approximately $5.7 million) to a dedicated relief fund. This fund will be used to reduce the shortfall in rsETH backing and help 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 pledged a 5,000 ETH contribution, stating that 'Aave is my life's work and we're working nonstop to find the best possible outcome for users.' The initiative comes after the largest crypto exploit of the year, which was caused by a vulnerability in KelpDAO's integration with LayerZero, resulting in the minting of 116,500 unbacked rsETH tokens. The attacker then deposited nearly 90,000 rsETH into Aave as collateral, borrowing approximately $190 million in ETH and other assets. This has left Aave with impaired collateral, triggering a rush of deposit withdrawals and a $10 billion plunge in the total value of assets on the platform.
The estimated total hole is over 112,000 rsETH, according to Aave's incident report. Prior to the DeFi United initiative, there were 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 challenging.
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.