In the aftermath of a $292 million hack, Aave and several prominent cryptocurrency companies are joining forces to stabilize the decentralized finance (DeFi) market. The collaborative effort, known as 'DeFi United', aims to restore the collateral backing of rsETH, an ether (ETH) yield-bearing derivative token at the center of the exploit. Aave has announced that multiple participants have already pledged their support for the initiative. Lido Finance's ecosystem contributor, Lido Labs Foundation, was among the first to offer aid, proposing to allocate up to 2,500 stETH, valued at approximately $5.7 million, to a dedicated relief fund.
The funds will be utilized to reduce the shortfall in rsETH backing and prevent forced liquidations across lending markets. EtherFi subsequently proposed a plan involving 5,000 ETH to 'protect users and prevent bad debt' across DeFi. Aave's founder, Stani Kulechov, also pledged 5,000 ETH, stating that 'Aave is my life's work and we're working nonstop to find the best possible outcome for users.' The initiative follows the largest crypto exploit of the year, which has 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.
The attacker then deposited nearly 90,000 rsETH into Aave as collateral, borrowing approximately $190 million in ETH and other assets across Ethereum and Arbitrum. As a result, Aave was left with impaired collateral, triggering a rush of withdrawals and a $10 billion plunge in the total value of assets on the platform. The estimated total shortfall stands at 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 roughly $71 million) tied to the exploit by Arbitrum's security council. However, the remaining stolen funds were bridged and swapped into bitcoin via Thorchain, complicating recovery efforts. The current focus is on stabilizing the system through a coordinated bailout to recapitalize rsETH and mitigate losses, rather than attempting to recover the stolen funds.