In the aftermath of a $292 million exploit, Aave and several major cryptocurrency firms have launched a joint effort, dubbed 'DeFi United', to stabilize the decentralized finance (DeFi) market. The initiative aims to restore the collateral backing of rsETH, a yield-bearing derivative token of ether (ETH), which was at the center of the exploit. Aave has announced that multiple participants have already committed to supporting the effort, with staking provider Lido Finance being the first to pledge up to 2,500 stETH, valued at approximately $5.7 million, to a dedicated relief fund. This will be used to reduce the shortfall in rsETH backing and prevent forced liquidations across lending markets.
EtherFi has also proposed a 5,000 ETH plan to 'protect users and prevent bad debt' across DeFi, while Stani Kulechov, founder of Aave, has offered a 5,000 ETH contribution. 'Aave is my life's work, and we're working tirelessly to find the best possible outcome for users,' Kulechov stated. 'I'm working to resolve this issue and normalize market conditions as soon as possible.' Aave plans to announce additional commitments once formalized.
The initiative comes after the largest crypto exploit of the year sent shockwaves through DeFi lending markets. The incident occurred due to a vulnerability in KelpDAO's integration with LayerZero, where an attacker minted 116,500 unbacked rsETH tokens by exploiting the bridge's messaging system. Instead of selling the tokens, the attacker deposited nearly 90,000 rsETH into Aave as collateral, borrowing around $190 million in ETH and other assets across Ethereum and Arbitrum.
This left Aave with impaired collateral, triggering a rush of withdrawals as lenders sought to retrieve available funds. The total value of assets on Aave plummeted by $10 billion following the incident. The estimated total shortfall is over 112,000 rsETH, according to Aave's incident report.
Prior to the DeFi United initiative, there were some early containment efforts, including Arbitrum's security council freezing 30,766 ETH, worth roughly $71 million, tied to the exploit. However, the remaining stolen funds were bridged and swapped into bitcoin via Thorchain, making recovery more complex.
The current effort focuses on stabilizing the system through a coordinated bailout to recapitalize rsETH and mitigate losses, rather than attempting to recover the stolen funds.