Crypto Coalition Unveils Proposal to Mitigate Aave Token Exploit

Typically, a $300 million shortfall doesn't come with a straightforward repair guide. However, the group spearheading the Kelp DAO recovery effort is attempting to create one. DeFi United has presented a detailed, step-by-step proposal to restore the backing of rsETH following this month's hack, which utilized Aave's infrastructure to mitigate the damage and stabilize markets. The incident occurred on April 18 when an attacker exploited a vulnerability in rsETH's bridge, tricking the system into releasing 116,500 rsETH without proper backing. These tokens were dispersed across multiple wallets and utilized as collateral on Aave and other lending platforms, causing protocols like Aave to hold unbacked collateral. The proposal aims to tackle two key issues: restoring rsETH's backing and unwinding the loans created using the exploited tokens. DeFi United claims to have secured sufficient ETH commitments to fully re-collateralize rsETH and plans to feed this ETH back into the system in stages. The proposal also involves carefully unwinding the mess in lending markets by dealing with the attacker's positions on Aave and temporarily adjusting rsETH's valuation to facilitate a more controlled liquidation of bad positions. This process is expected to recover around 13,000 ETH from Aave alone, which will be converted into ETH to cover the shortfall created by the exploit. Although the process carries risks, it reflects a more coordinated response than DeFi has previously managed, with the ultimate goal of fully restoring rsETH's backing and stabilizing affected markets.