Coalition Unveils Plan to Mitigate $300 Million Token Exploit Impact on Aave Users

The aftermath of a $300 million exploit typically doesn't come with a straightforward solution. However, DeFi United, a coalition comprising multiple blockchain projects and crypto ecosystem stakeholders, is attempting to provide one. Following the Kelp DAO hack earlier this month, which sent shockwaves through DeFi lending markets, the coalition has outlined a step-by-step plan to restore the backing of rsETH. This plan relies heavily on Aave's infrastructure to rectify the damage and stabilize the markets. The incident occurred on April 18 when an attacker exploited a vulnerability in rsETH's bridge, creating 116,500 rsETH tokens without proper backing by forging a message that appeared legitimate. These tokens were then dispersed across multiple wallets and utilized as collateral on Aave and other lending platforms. As a result, protocols like Aave found themselves holding collateral that was not fully backed, leading to a systemic issue. According to the proposal, approximately 107,000 of the original 116,500 rsETH remain tied up in active positions across Aave and Compound. DeFi United's proposal aims to address two primary issues: restoring the backing of rsETH and unwinding the loans created using the exploited tokens. To achieve this, the group has secured enough ETH commitments to fully re-collateralize rsETH and plans to feed this ETH back into the system in stages. Concurrently, the proposal focuses on the lending markets where the damage is most evident. Rather than allowing the situation to unfold chaotically, the plan involves carefully unwinding the mess. This includes dealing with the positions the attacker opened on Aave, which are essentially loans backed by rsETH that should not have existed. By temporarily adjusting how rsETH is valued within the system, these bad positions can be liquidated or closed more smoothly, enabling the recovery of underlying assets like ETH. The proposal estimates that this could free up around 13,000 ETH from Aave alone. Once this collateral is recovered, it will be converted into ETH and used to cover the shortfall created by the exploit. Although the process carries risks, including governance approvals and the successful deployment of committed funds, it reflects a more coordinated response than DeFi has often managed previously. If executed as intended, the ultimate goal is to fully restore rsETH backing and stabilize all affected markets.