Coalition Unveils Plan to Mitigate Aave Token Exploit

The aftermath of a $300 million exploit typically doesn't come with a straightforward solution. However, DeFi United is attempting to create a roadmap for recovery. The coalition has outlined a detailed, step-by-step proposal to restore the backing of rsETH following the Kelp DAO hack, which released over 116,000 unaccounted-for tokens and disrupted DeFi lending markets. The plan, shared on Aave's official X account, resembles a coordinated effort to utilize Aave's infrastructure and stabilize the markets. The exploit, which occurred on April 18, was caused by an attacker manipulating a vulnerability in rsETH's bridge, resulting in the creation of 116,500 rsETH without backing. These tokens were then dispersed across multiple wallets and used as collateral on Aave and other lending platforms, causing systemic issues. According to the proposal, approximately 107,000 of the exploited rsETH remain active on Aave and Compound. To address this, DeFi United's plan aims to restore the backing of rsETH and unwind the loans created using the extra tokens simultaneously. The coalition claims to have secured sufficient ETH commitments to fully re-collateralize rsETH, which will be fed back into the system in stages. Meanwhile, the plan focuses on carefully unwinding the damage in the lending markets. This involves dealing with the positions the attacker opened on Aave, which are essentially loans backed by rsETH that shouldn't exist. Rather than allowing these loans to collapse, the proposal suggests temporarily adjusting rsETH's valuation to enable a more controlled liquidation or closure of these positions. As these positions are unwound, the underlying assets, such as ETH, can be recovered, potentially freeing up around 13,000 ETH from Aave. Once the collateral is recovered, it will be converted into ETH to cover the shortfall created by the exploit. Although the process carries risks, including governance approvals and the successful deployment of committed funds, the plan represents a coordinated response to the crisis. If executed successfully, the ultimate goal is to fully restore rsETH's backing and stabilize the affected markets.