In the aftermath of a $292 million exploit, Aave and several prominent crypto firms have joined forces to launch a recovery effort aimed at stabilizing the decentralized finance (DeFi) market. The initiative, known as 'DeFi United', seeks 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 staking provider Lido Finance and EtherFi being among the first to offer aid.
Lido Labs Foundation has proposed allocating up to 2,500 stETH, valued at approximately $5.7 million, to a relief fund, while EtherFi has suggested a 5,000 ETH plan to protect users and prevent bad debt across DeFi. Aave's founder, Stani Kulechov, has also pledged 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 exploit, which occurred due to a vulnerability in KelpDAO's integration with LayerZero, resulted in the minting of 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 significant impairment of Aave's collateral, triggering a rush of withdrawals and a $10 billion decline in the platform's total asset value. The total shortfall is estimated to be over 112,000 rsETH, according to Aave's incident report. Prior to the DeFi United initiative, some early containment efforts were made, 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 the recovery process. The current effort focuses on stabilizing the system through a coordinated bailout, aiming to recapitalize rsETH and mitigate losses rather than attempting to recover the stolen funds.