In response to a $292 million exploit that has left a substantial collateral shortfall in decentralized finance (DeFi) markets, Aave and several prominent crypto firms are collaborating on a stabilization effort. The initiative, known as "DeFi United", aims to restore the backing of rsETH, an ether (ETH) yield-bearing derivative token at the center of the exploit. Aave has announced that multiple participants have already committed to supporting the effort, with staking provider Lido Finance and EtherFi being among the first to offer aid.
Lido Labs Foundation has proposed allocating up to 2,500 stETH, valued at approximately $5.7 million, to a dedicated relief fund. Additionally, EtherFi has proposed a 5,000 ETH plan to protect users and prevent bad debt across DeFi, while Aave's founder, Stani Kulechov, has also pledged 5,000 ETH. The primary objective of these commitments is to reduce the shortfall in rsETH backing and prevent forced liquidations across lending markets. The exploit, which occurred due to a vulnerability in KelpDAO's integration with LayerZero, resulted in the minting of 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. This led to impaired collateral, triggering a rush of withdrawals and a $10 billion decline in the total value of assets on Aave. The total estimated shortfall is over 112,000 rsETH, according to Aave's incident report.
Prior to the DeFi United initiative, there were some early containment efforts, including the freezing of 30,766 ETH by Arbitrum's security council. However, the remaining stolen funds were bridged and swapped into bitcoin via Thorchain, complicating the recovery process. 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.