Crypto Coalition Unveils Plan to Mitigate Aave Token Exploit

The aftermath of a $300 million exploit typically doesn't come with a straightforward repair guide. However, DeFi United is attempting to create one through a detailed, step-by-step plan to restore the backing of rsETH following the Kelp DAO hack, which released over 116,000 unaccounted tokens and disrupted lending markets. The proposal outlines a coordinated effort, heavily reliant on Aave's infrastructure, to rectify the damage and stabilize the markets. It traces back to April 18, when an attacker exploited a vulnerability in rsETH's bridge, tricking the Ethereum side into releasing 116,500 rsETH without proper backing. These tokens were dispersed across multiple wallets and utilized as collateral on various lending platforms, including Aave. As a result, protocols like Aave found themselves holding unbacked collateral, creating a systemic issue. According to the proposal, most of the exploited funds remain active, with approximately 107,000 rsETH still tied up in positions across Aave and Compound. DeFi United's plan addresses both the restoration of rsETH's backing and the unwinding of loans created using the exploited tokens. The group claims to have secured sufficient ETH commitments to fully re-collateralize rsETH, which will be fed back into the system in stages. Concurrently, the plan focuses on carefully unwinding the lending market mess by dealing with the attacker's positions on Aave, essentially loans backed by rsETH that should not have existed. The proposal suggests temporarily adjusting rsETH's valuation within the system to enable the smooth closure of these bad positions, allowing for the recovery of underlying assets like ETH. This could potentially free up around 13,000 ETH from Aave alone, which would then be converted into ETH to cover the exploit's shortfall. While the process carries risks, including governance approvals and the successful deployment of committed funds, the plan represents a more coordinated response than DeFi has typically managed. Its successful execution aims to fully restore rsETH's backing and stabilize affected markets.