Coalition Unveils Plan to Mitigate Aave Token Exploit

Recovering from a $300 million loss is a daunting task, but DeFi United is attempting to create a roadmap for repair. The coalition has outlined a step-by-step plan to revive the backing of rsETH following this month's Kelp DAO hack, which sent shockwaves through DeFi lending markets and released over 116,000 unaccounted-for tokens. The proposal, shared on Aave's official X account, details a coordinated effort to utilize Aave's infrastructure and stabilize the markets. The hack, which occurred on April 18, exploited a vulnerability in rsETH's bridge, resulting in the creation of 116,500 rsETH tokens without backing. These tokens were then dispersed across multiple wallets and deployed in DeFi, with a significant portion used as collateral on Aave and other lending platforms. This led to protocols like Aave holding collateral that was temporarily unbacked. According to the proposal, most of the exploited funds remain active, with approximately 107,000 of the original 116,500 rsETH still tied up in positions across Aave and Compound. DeFi United's proposal aims to address both the restoration of rsETH's backing and the unwinding of loans created using the extra tokens. The group 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 involves carefully unwinding the mess in lending markets by dealing with the positions the attacker opened on Aave. This includes temporarily adjusting rsETH's valuation to enable the liquidation or closure of these positions, allowing the recovery of underlying assets like ETH. The proposal estimates that around 13,000 ETH could be freed up from Aave alone. Once the collateral is recovered, it will be converted into ETH to cover the shortfall created by the exploit. While the process carries risks, it reflects a more coordinated response than DeFi has previously managed. If executed as intended, the goal is to fully restore rsETH's backing and stabilize the affected markets.