Decentralized lending platform Aave has successfully raised approximately $160 million to address the $200 million in bad debt resulting from the largest DeFi exploit of the year, as reported by blockchain analytics platform Arkham on Saturday. The platform noted, 'Aave has raised $160M to cover the bad debt from the Kelp DAO Exploit, at defiunited.eth. The largest contributors, Mantle and AAVE DAO, have collectively raised 55,000 ETH, valued at $127M.' Following a $292 million security breach that left the crypto borrowing sector's largest lender facing a financial crisis, Aave and several major cryptocurrency firms launched a coordinated recovery effort, known as DeFi United, to stabilize DeFi markets.
Led by Aave service providers, the initiative aims to restore support for rsETH, the yield-bearing derivative token of ether at the core of the exploit. Aave founder Stani Kulecho announced a personal contribution of 5,000 ETH to DeFi United, valued at approximately $11,730,000 at the current ether price of $2,346.
The exploit, which was traced back to a KelpDAO integration vulnerability with LayerZero, allowed an attacker to mint 116,500 unbacked rsETH tokens, resulting in impaired collateral for Aave and triggering a run on deposits as lenders rushed to exit, ultimately withdrawing $10 billion. The primary focus of the effort to eliminate the bad debt is on stabilizing the system through a coordinated bailout to recapitalize rsETH and mitigate losses.
This incident follows the second-largest exploit of the year, which occurred in late March, where an attacker drained at least $270 million from the Drift Protocol on Solana by exploiting a legitimate feature called 'durable nonces.'