Crypto Coalition Unveils Technical Proposal 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 by spearheading the Kelp DAO recovery effort with a detailed plan to restore rsETH's backing. This month's Kelp DAO hack, which released over 116,000 unaccounted tokens, has prompted DeFi United to devise a coordinated cleanup operation. The proposal, shared on Aave's official X account, relies heavily on Aave's infrastructure to rectify the damage and stabilize the markets. The incident originated from an exploit of rsETH's bridge on April 18, where an attacker forged a legitimate message, tricking the Ethereum side into releasing 116,500 rsETH without proper backing. These tokens were then dispersed across multiple wallets and utilized as collateral on Aave and other lending platforms, creating a systemic issue. As a result, protocols like Aave found themselves holding unbacked collateral. According to the proposal, approximately 107,000 of the exploited rsETH remain tied up in active positions across Aave and Compound. DeFi United's proposal aims to address both the restoration of rsETH's backing and the unwinding of loans created using the extra tokens. The group claims to have secured sufficient ETH commitments to re-collateralize rsETH, which will be fed back into the system in stages to ensure the token is fully backed. 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 unwinding of the mess, particularly with regards to the positions the attacker opened on Aave. By temporarily adjusting rsETH's valuation within the system, the proposal enables the liquidation or 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 shortfall created by the exploit. Although 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. If executed successfully, the ultimate goal is to fully restore rsETH's backing and stabilize the affected markets.