Coalition Unveils Plan to Mitigate Aave Token Exploit

Unlike typical $300 million losses, this one may come with a recovery roadmap. DeFi United, a coalition comprising multiple blockchain projects and individuals from the crypto ecosystem, has outlined a step-by-step plan to address the aftermath of the Kelp DAO hack, which released over 116,000 unaccounted tokens into the market. The proposal aims to utilize Aave's infrastructure to rectify the damage and stabilize the markets. The incident originated from an exploit on April 18, where an attacker manipulated the rsETH bridge, resulting in the release of 116,500 rsETH tokens without proper backing. These tokens were dispersed across multiple wallets and utilized as collateral on lending platforms, including Aave. The proposal highlights that most of the exploited funds remain active, with approximately 107,000 rsETH still tied to positions on Aave and Compound. To address this, DeFi United's plan involves restoring the backing of rsETH and unwinding the loans created with the exploited tokens. The group claims to have secured sufficient ETH commitments to re-collateralize rsETH, which will be reintroduced into the system in stages. Concurrently, the plan focuses on the lending markets, where the damage is most pronounced. Rather than allowing the situation to unfold chaotically, the proposal suggests a controlled approach to unwind the affected positions. This involves temporarily adjusting the valuation of rsETH within the system to facilitate the smooth closure of the attacker's positions on Aave. As these positions are unwound, the underlying assets, such as ETH, can be recovered, 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. While the process carries risks, including the need for governance approvals and successful fund deployment, it represents a coordinated effort to stabilize the affected markets. The ultimate goal, as stated in the proposal, is to fully restore the backing of rsETH and stabilize all affected markets.