Coalition Unveils Plan to Mitigate Aave Token Exploit

Typically, a $300 million shortfall doesn't come with a straightforward repair guide. However, the group leading the Kelp DAO recovery effort is attempting to create one. DeFi United, a coalition comprising multiple blockchain projects and crypto ecosystem individuals, has outlined a detailed, step-by-step plan to restore the backing of rsETH following this month's Kelp DAO hack, which released over 116,000 unaccounted-for tokens and disrupted DeFi lending markets. The proposal, shared on Aave's official X account, resembles a coordinated cleanup operation, relying heavily on Aave's infrastructure to rectify the damage and stabilize the markets. The incident stems from an April 18 attack that exploited a vulnerability in rsETH's bridge, resulting in the release of 116,500 rsETH tokens without proper backing. These tokens were then dispersed across multiple wallets and utilized as collateral on Aave and other lending platforms, creating a systemic issue. 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, planning to feed the ETH back into the system in stages. Meanwhile, the plan involves carefully unwinding the lending market mess, including dealing with the attacker's positions on Aave. By temporarily adjusting rsETH's valuation, the proposal suggests closing out these positions in a more controlled manner, potentially freeing up around 13,000 ETH from Aave. The recovered collateral will then be converted into ETH to cover the exploit's shortfall. Although the process carries risks, it reflects a more coordinated response than DeFi has previously managed. If executed as intended, the ultimate goal is to fully restore rsETH's backing and stabilize the affected markets.