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

The aftermath of a $300 million exploit typically lacks a straightforward solution. However, DeFi United is attempting to create a roadmap for recovery. Following the Kelp DAO hack earlier this month, which impacted DeFi lending markets by releasing over 116,000 unaccounted tokens, the group has outlined a step-by-step plan to restore the backing of rsETH. The proposal, shared on Aave’s official X account, resembles a coordinated effort to utilize Aave’s infrastructure and stabilize the markets. The incident occurred on April 18, when an attacker exploited a vulnerability in rsETH’s bridge, tricking the system into releasing 116,500 rsETH without proper backing. These tokens were then spread across multiple wallets and deployed in DeFi, with a significant portion used as collateral on lending platforms like Aave. As a result, protocols such as 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 tied up in positions across Aave and Compound. DeFi United’s proposal aims to address the dual issues of restoring rsETH’s backing and unwinding the loans created using the exploited tokens. The group claims to have secured sufficient ETH commitments to re-collateralize rsETH, which will be fed back into the system in stages. Simultaneously, the plan involves carefully unwinding the damage in lending markets. This includes dealing with the attacker’s positions on Aave, which are essentially loans backed by unbacked rsETH. Rather than allowing these loans to collapse, the proposal suggests temporarily adjusting rsETH’s valuation to enable a more controlled liquidation. As these positions are unwound, the underlying assets can be recovered, potentially freeing up around 13,000 ETH from Aave. This collateral will then be converted into ETH to cover the shortfall created by the exploit. While the process carries risks, including governance approvals and the successful deployment of funds, it represents a more coordinated response than previously seen in DeFi. The ultimate goal, as stated in the proposal, is to fully restore rsETH’s backing and stabilize the affected markets.