Coalition Unveils Plan to Mitigate Aave Token Exploit

A $300 million shortfall has prompted a coordinated recovery effort. DeFi United, a coalition of blockchain projects and crypto ecosystem stakeholders, has outlined a step-by-step plan to restore rsETH's backing after the Kelp DAO hack sent shockwaves through DeFi lending markets, resulting in the release of over 116,000 unaccounted tokens. The proposal, shared on Aave's official X account, details a cleanup operation leveraging Aave's infrastructure to rectify the damage and stabilize markets. The incident occurred on April 18 when an attacker exploited a vulnerability in rsETH's bridge, forging a message that tricked the Ethereum side into releasing 116,500 rsETH, which were then spread across multiple wallets and deployed in DeFi, with a significant portion used as collateral on Aave and other lending platforms. This created a systemic problem, as protocols like Aave held collateral that was temporarily unbacked. According to the proposal, most of the exploited funds remain active, with roughly 107,000 of the original 116,500 rsETH tied up in positions across Aave and Compound. DeFi United's proposal aims to tackle both the restoration of rsETH's backing and the unwinding of loans created using the extra tokens. The group has secured enough ETH commitments to re-collateralize rsETH and plans to feed it back into the system in stages, converting it to rsETH and depositing it to restore the token's backing. The plan also involves carefully unwinding the lending market mess by dealing with the attacker's positions on Aave, which are essentially loans backed by rsETH that shouldn't exist. Temporarily adjusting rsETH's valuation will enable these bad positions to be liquidated or closed more smoothly, recovering underlying assets like ETH. The proposal estimates this could free up around 13,000 ETH from Aave alone, which will be converted to ETH and used to cover the shortfall created by the exploit. The process relies on governance approvals, successful fund deployment, and smooth execution. If executed as intended, the goal is to fully restore rsETH's backing and stabilize affected markets.