In response to a massive $292 million exploit, Aave has teamed up with several major cryptocurrency firms to launch a concerted recovery effort aimed at stabilizing the decentralized finance (DeFi) market. The initiative, known as 'DeFi United', is led by Aave service providers and focuses on restoring the collateral backing of rsETH, a yield-bearing ether (ETH) derivative token that was at the center of the exploit. Aave announced that multiple participants have already committed to supporting the effort, with staking provider Lido Finance being the first to pledge its support. Lido Labs Foundation, an ecosystem contributor, proposed allocating up to 2,500 stETH, valued at approximately $5.7 million, to a dedicated relief fund.
The funds will be used to reduce the shortfall in rsETH backing and help prevent forced liquidations across lending markets. This was followed by EtherFi's proposal of a 5,000 ETH plan to 'protect users and prevent bad debt' across DeFi. Aave's founder, Stani Kulechov, also offered a 5,000 ETH contribution, stating that 'Aave is my life's work and we're working nonstop to find the best possible outcome for users.' The initiative comes after the largest crypto exploit of the year sent shockwaves through DeFi lending markets.
The incident was caused by a vulnerability in KelpDAO's integration with LayerZero, allowing an attacker to mint 116,500 unbacked rsETH tokens. Instead of selling the tokens, the attacker deposited nearly 90,000 rsETH into Aave as collateral, borrowing approximately $190 million in ETH and other assets. 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, complicating recovery efforts.
The current initiative prioritizes stabilizing the system through a coordinated bailout to recapitalize rsETH and mitigate losses, rather than attempting to recover the stolen funds.