In the aftermath of a $292 million exploit, Aave and major cryptocurrency firms have come together to stabilize the decentralized finance (DeFi) market. The collaborative effort, known as 'DeFi United', aims to restore the collateral backing of rsETH, a yield-bearing ether (ETH) derivative token at the center of the hack. Aave has announced that multiple participants have already committed to supporting the initiative.
Lido Finance's ecosystem contributor, Lido Labs Foundation, has proposed allocating up to 2,500 stETH, valued at approximately $5.7 million, to a dedicated relief fund. This will help reduce the shortfall in rsETH backing and prevent forced liquidations across lending markets. EtherFi has also proposed a 5,000 ETH plan to 'protect users and prevent bad debt' across DeFi. Aave's founder, Stani Kulechov, has pledged 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 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. The attacker then deposited nearly 90,000 rsETH into Aave as collateral, borrowing around $190 million in ETH and other assets across Ethereum and Arbitrum.
This left Aave with impaired collateral, triggering a run on deposits as lenders rushed to withdraw available funds. The total value of assets on Aave plummeted by $10 billion following the incident.
The total shortfall is estimated to be 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, making recovery more complex. The current effort focuses on stabilizing the system through a coordinated bailout to recapitalize rsETH and mitigate losses, rather than attempting to recover the stolen funds.