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, a coalition comprising multiple blockchain projects and crypto ecosystem individuals, is attempting to devise a repair plan. The coalition has outlined a step-by-step proposal to restore the backing of rsETH following the Kelp DAO hack, which released over 116,000 unaccounted tokens and disrupted DeFi lending markets. The proposal, shared on Aave's official X account, details a coordinated effort leveraging Aave's infrastructure to rectify the damage and stabilize the markets. The incident occurred on April 18 when an attacker exploited a vulnerability in rsETH's bridge, tricking the Ethereum side 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, resulting in protocols holding unbacked collateral. According to the proposal, most of the exploited funds remain active, with approximately 107,000 rsETH tied up in positions across Aave and Compound. DeFi United's plan 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 re-collateralize rsETH and plans to feed the ETH back into the system in stages. Simultaneously, the plan involves carefully unwinding the mess in the lending markets by dealing with the attacker's positions on Aave. This entails temporarily adjusting rsETH's valuation to enable the liquidation or closure of bad positions, allowing for 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 represents a more coordinated response than DeFi has typically managed. The ultimate goal is to fully restore rsETH's backing and stabilize the affected markets.