Crypto Coalition Unveils Plan to Mitigate $300 Million Token Exploit

The aftermath of a $300 million exploit typically doesn't come with a straightforward repair guide. However, DeFi United, a coalition comprising multiple blockchain projects and crypto ecosystem stakeholders, is attempting to create one. DeFi United has outlined a detailed, step-by-step proposal to restore the backing of rsETH, subsequent to the Kelp DAO hack that sent shockwaves through DeFi lending markets. The hack resulted in the release of over 116,000 unaccounted-for tokens. The proposal, which is available on Aave's official X account, resembles a coordinated recovery effort. It 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. By creating a fake message that appeared legitimate, the attacker deceived the Ethereum side of the system into releasing 116,500 rsETH. This created a large batch of rsETH without backing. These tokens were not idle; they were dispersed across multiple wallets and deployed across DeFi. A significant portion was used as collateral on Aave and other lending platforms. This is where the issue became systemic: protocols like Aave found themselves holding collateral that was not fully backed. According to the proposal, most of the exploited funds are still in circulation. Approximately 107,000 of the original 116,500 rsETH remain tied up in active positions across Aave and Compound. This creates two problems that need to be addressed simultaneously: restoring the actual backing of rsETH and unwinding the loans created using the extra tokens. DeFi United's proposal aims to tackle both aspects of the equation. To restore the backing, the group claims to have secured sufficient ETH commitments to fully re-collateralize rsETH. The plan involves feeding the ETH back into the system in stages, converting it to rsETH, and depositing it back into the system to ensure the token is fully backed. Meanwhile, attention is focused on the lending markets where the damage is most visible. Instead of allowing the situation to unfold chaotically, the plan is to intervene and carefully rectify the issue. A significant part of this involves addressing the positions the attacker opened on Aave, which are essentially loans backed by rsETH that should not have existed. Rather than waiting for these loans to collapse, the proposal suggests guiding the system to enable their closure in a more controlled manner. In practice, temporarily adjusting how rsETH is valued within the system will facilitate the smooth liquidation or closure of these bad positions. As these positions are unwound, the underlying assets, such as ETH, can be recovered. The proposal estimates that this could free up around 13,000 ETH from Aave alone. Once the 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. The process is not without risks, as it relies on governance approvals across multiple chains, the successful deployment of committed funds, and a smooth execution of the unwind. However, the plan represents a more coordinated response than DeFi has typically managed. If executed as intended, the ultimate goal is straightforward: the backing of rsETH is fully restored, and all affected markets are stabilized, as stated in the proposal.