Coalition Unveils Plan to Mitigate Aave Token Exploit

In a rare instance, a $300 million shortfall may have a viable repair plan. DeFi United, a coalition comprising multiple blockchain projects and crypto ecosystem players, has outlined a detailed strategy to restore the backing of rsETH following this month's Kelp DAO hack, which released over 116,000 unaccounted tokens and disrupted DeFi lending markets. The plan, shared on Aave's official X account, resembles a coordinated recovery effort, relying heavily on Aave's infrastructure to rectify the damage and stabilize the markets. The hack, which occurred on April 18, exploited a vulnerability in rsETH's bridge, resulting in the unauthorized release of 116,500 rsETH tokens. These tokens were subsequently dispersed across multiple wallets and utilized as collateral on various lending platforms, including Aave. The proposal aims to address two pressing issues: re-establishing the backing of rsETH and unwinding the loans created using the exploited tokens. DeFi United claims to have secured sufficient ETH commitments to fully re-collateralize rsETH, which will be fed back into the system in stages. Concurrently, the plan focuses on carefully unwinding the affected lending markets, including the closure of positions opened by the attacker on Aave. By temporarily adjusting the valuation of rsETH within the system, these positions can be liquidated or closed more smoothly, potentially freeing up around 13,000 ETH from Aave. The recovered collateral will then be converted into ETH to cover the shortfall created by the exploit. Although the process carries risks, including the need for governance approvals and the successful deployment of committed funds, it represents a coordinated response to the crisis. If executed successfully, the plan aims to fully restore the backing of rsETH and stabilize the affected markets.