Aave, a lending platform, has successfully raised approximately $160 million to cover the $200 million in bad debt resulting from the largest decentralized finance exploit of the year, as reported by Arkham on Saturday. The blockchain analytics platform stated, "Aave has raised $160M to cover the bad debt from the Kelp DAO exploit, via 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 largest lender in the crypto borrowing sector facing a financial crisis, Aave and several major crypto firms launched a coordinated recovery effort to stabilize DeFi markets last week.
Led by Aave service providers, the initiative, known as DeFi United, aims to restore support for rsETH, the yield-bearing derivative token of ether at the core of the exploit. Aave founder Stani Kulecho announced, "I am personally contributing 5,000 ETH to DeFi United as we continue to work with our partners." With ether's current price of approximately $2,346, his contribution is worth around $11,730,000. The exploit was traced back to a vulnerability in the KelpDAO integration with LayerZero, where an attacker minted 116,500 unbacked rsETH tokens, leaving Aave with impaired collateral and triggering a run on deposits as lenders rushed to exit, resulting in $10 billion in withdrawals.
The primary focus of the effort to eliminate the bad debt is on stabilizing the system through a coordinated bailout to recapitalize rsETH and minimize losses. Earlier this year, the second-largest exploit occurred in late March, when an attacker drained at least $270 million from the Drift Protocol on Solana by exploiting a legitimate feature called 'durable nonces.'