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 devise a step-by-step plan to rectify the damage. This plan seeks to restore the backing of rsETH after the recent Kelp DAO hack sent shockwaves through DeFi lending markets, resulting in the release of over 116,000 unaccounted tokens. The proposed plan, shared on Aave's official X account, outlines a coordinated effort to utilize Aave's infrastructure and undo the damage, thereby stabilizing the markets. The incident originated from an exploit on April 18, where an attacker manipulated the rsETH bridge, deceiving the Ethereum side into releasing 116,500 rsETH, which were then spread across multiple wallets and deployed in DeFi, with a significant portion used as collateral on Aave and other lending platforms. This created a systemic issue, as protocols like Aave found themselves holding collateral that lacked full backing. According to the proposal, most of the exploited funds remain active, with approximately 107,000 of the original 116,500 rsETH still tied to positions on Aave and Compound. Consequently, two pressing issues need to be addressed: restoring the actual backing of rsETH and unwinding the loans created using the extra tokens. DeFi United's proposal aims to tackle both aspects simultaneously. To re-collateralize rsETH, the group claims to have secured sufficient ETH commitments, which will be fed back into the system in stages, converting it to rsETH and depositing it to ensure the token is fully backed once more. Meanwhile, attention is focused on the lending markets where the damage is most evident. Instead of allowing the situation to unfold chaotically, the plan involves carefully unwinding the mess. This includes dealing with the positions the attacker opened on Aave, essentially loans backed by rsETH that should not have existed. Rather than waiting for these loans to collapse, causing further market disruption, the proposal suggests temporarily adjusting rsETH's valuation within the system to facilitate a more controlled closure of these positions. As these positions are unwound, the underlying assets, such as ETH, can be recovered. The proposal estimates that around 13,000 ETH could be freed from Aave alone. Once this collateral is recovered, it will be converted into ETH and used to cover the shortfall created by the exploit, effectively filling the hole left behind. Although the process carries risks, including the need for governance approvals across multiple chains and the successful deployment of committed funds, it represents a more coordinated response than DeFi has typically managed. If executed as intended, the ultimate goal is clear: the rsETH backing will be fully restored, and all affected markets will be stabilized, as stated in the proposal.