In the aftermath of a $292 million exploit that has left Aave, the largest DeFi lender, facing significant collateral shortfalls, a coalition of major crypto firms is working together to restore stability to decentralized finance markets. The 'DeFi United' initiative, spearheaded by Aave service providers, aims to replenish the backing of rsETH, a yield-bearing ether derivative at the center of the exploit.
Aave has announced that several participants have already committed to supporting the effort, with staking provider Lido Finance and EtherFi being among the first to offer aid. Lido's ecosystem contributor, Lido Labs Foundation, has proposed allocating up to 2,500 stETH, valued at approximately $5.7 million, to a relief fund designed to 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 5,000 ETH towards the effort, stating that finding the best possible outcome for users is his top priority. The initiative follows the largest crypto exploit of the year, which has sent shockwaves through DeFi lending markets. The incident was caused by 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 used nearly 90,000 rsETH as collateral on Aave, borrowing around $190 million in ETH and other assets.
This has resulted in impaired collateral on Aave, triggering a rush of deposit withdrawals and a $10 billion decline in the platform's total asset value. The total shortfall is estimated to be over 112,000 rsETH, according to Aave's incident report. Prior to the DeFi United initiative, there have been some early containment efforts, including the freezing of 30,766 ETH tied to the exploit by Arbitrum's security council. However, the remaining stolen funds were bridged and swapped into bitcoin via Thorchain, making recovery more challenging.
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.