Aave, a lending platform, has successfully raised approximately $160 million to mitigate the $200 million in bad debt resulting from the largest decentralized finance exploit of the year, as reported by Arkham on X. The platform stated, "To date, AAVE has raised $160M to cover the bad debt from the Kelp DAO Exploit, at defiunited.eth. The largest contributors are Mantle and AAVE DAO, who together contributed 55,000 ETH, valued at $127M." Last week, Aave and several prominent cryptocurrency firms launched a coordinated recovery effort, DeFi United, to stabilize DeFi markets following a $292 million security breach that left the largest lender in the crypto borrowing sector facing a financial crisis.
The initiative, led by Aave service providers, aims to restore support for rsETH, the yield-bearing derivative token of ether at the center of the exploit. Aave founder Stani Kulecho announced his personal contribution of 5,000 ETH to DeFi United, valued at approximately $11,730,000 at the current ether price of $2,346.
The exploit is attributed to a vulnerability in the KelpDAO integration with LayerZero, where an attacker created 116,500 unbacked rsETH tokens, resulting in impaired collateral for Aave and triggering a deposit run as lenders rushed to exit, ultimately withdrawing $10 billion. The primary focus of the effort to eliminate the bad debt is on stabilizing the system through a coordinated bailout to recapitalize rsETH and minimize losses. This year's second-largest exploit occurred in late March, when an attacker exploited the Drift Protocol on Solana, draining at least $270 million by abusing the 'durable nonces' feature.