In the aftermath of a $292 million exploit, Aave and several prominent crypto companies have joined forces to launch a recovery effort aimed at stabilizing the decentralized finance (DeFi) sector. The initiative, known as 'DeFi United', is focused on restoring the collateral backing of rsETH, a yield-bearing ether (ETH) derivative token at the center of the exploit. Aave has announced that multiple participants have already committed to supporting the effort, with staking provider Lido Finance and EtherFi being among the first to offer aid.
Lido Labs Foundation has proposed allocating up to 2,500 stETH, valued at approximately $5.7 million, to a dedicated relief fund. Meanwhile, EtherFi has suggested a 5,000 ETH plan to 'protect users and prevent bad debt' across DeFi. Aave's founder, Stani Kulechov, has also pledged 5,000 ETH to support the recovery effort. According to Kulechov, 'Aave is my life's work, and we're working tirelessly to find the best possible outcome for users.' The initiative comes in response to the largest crypto exploit of the year, which has sent shockwaves through DeFi lending markets.
The incident occurred due to 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 has resulted in impaired collateral, triggering a rush of withdrawals and a $10 billion decline in Aave's total asset value. The estimated total shortfall is over 112,000 rsETH, according to Aave's incident report.
Prior to the DeFi United initiative, some early containment efforts were made, including the freezing of 30,766 ETH (worth roughly $71 million) by Arbitrum's security council. However, the remaining stolen funds were bridged and swapped into bitcoin via Thorchain, making recovery more complex.
The current effort prioritizes stabilizing the system through a coordinated bailout, aiming to recapitalize rsETH and mitigate losses rather than focusing on recovering the stolen funds.