Crypto Coalition Unveils Technical Plan to Mitigate Aave Token Exploit

A $300 million shortfall typically 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 of blockchain projects and crypto ecosystem individuals, has outlined a detailed, step-by-step plan to restore the backing of rsETH after the recent hack sent shockwaves through DeFi lending markets, releasing over 116,000 unaccounted-for tokens. The proposal, shared on Aave's official X account, resembles a coordinated cleanup operation that heavily relies on Aave's infrastructure to rectify the damage and stabilize markets. The incident originated 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 deployed throughout DeFi, with a significant portion used as collateral on Aave and other lending platforms. As a result, protocols like Aave found themselves 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 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 enough ETH commitments to fully re-collateralize rsETH and plans to feed this ETH back into the system in stages. Meanwhile, attention will shift to the lending markets where the damage is most visible. Instead of allowing the situation to unfold chaotically, the plan involves carefully unwinding the mess. A key aspect of this process is dealing with the positions the attacker opened on Aave, which are essentially loans backed by rsETH that should not have existed. Rather than waiting for these loans to collapse, the proposal suggests temporarily adjusting rsETH's valuation within the system to enable the liquidation or closure of these bad positions in a more controlled manner. As these positions are unwound, the underlying assets, such as ETH, can be recovered. The proposal estimates that this could free up around 13,000 ETH from Aave alone. Once the collateral is recovered, it will be converted into ETH and used to cover the shortfall created by the exploit. Although the process carries risks, it represents a more coordinated response than DeFi has often managed in the past. If executed successfully, the ultimate goal is to fully restore rsETH's backing and stabilize all affected markets.