In the wake of a devastating $292 million exploit, Aave has joined forces with several prominent crypto firms to launch a recovery effort aimed at shoring up the decentralized finance (DeFi) market. The collaborative initiative, dubbed 'DeFi United' and spearheaded by Aave service providers, seeks to restore 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 staking provider Lido Finance and EtherFi among the first to pledge aid. Lido Labs Foundation, an ecosystem contributor to Lido Finance, has proposed allocating up to 2,500 stETH (valued at approximately $5.7 million) to a dedicated relief fund, while EtherFi has put forth a 5,000 ETH plan to safeguard users and prevent the accumulation of bad debt across DeFi.
Aave founder Stani Kulechov has also pledged a 5,000 ETH contribution, emphasizing his commitment to finding the best possible outcome for users and normalizing market conditions as soon as possible. The initiative comes in response to the year's largest crypto exploit, which has sent shockwaves through DeFi lending markets. The incident originated from a vulnerability in KelpDAO's integration with LayerZero, allowing an attacker to mint 116,500 unbacked rsETH tokens by exploiting the bridge's messaging system. Instead of offloading the tokens, the attacker deposited nearly 90,000 rsETH into Aave as collateral, borrowing around $190 million in ETH and other assets across Ethereum and Arbitrum.
This left Aave with impaired collateral, triggering a rush of deposit withdrawals and a $10 billion plunge in the platform's total asset value. 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 approximately $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 initiative focuses on stabilizing the system through a coordinated bailout, aiming to recapitalize rsETH and mitigate losses rather than attempting to recover the stolen funds.