Decentralized lending platform Aave has successfully raised approximately $160 million to mitigate the $200 million in bad debt resulting from the year's most significant decentralized finance (DeFi) exploit, as reported by Arkham on Saturday. In a post, the blockchain analytics platform stated, "To date, AAVE has raised $160M to cover the bad debt from the Kelp DAO Exploit, facilitated through defiunited.eth." The largest contributors, Mantle and AAVE DAO, have collectively raised 55,000 ETH, equivalent to $127 million. Following a $292 million security breach that left the largest DeFi lender facing a financial crisis, Aave and several prominent crypto firms announced a coordinated recovery effort last week to stabilize DeFi markets.
The initiative, known as DeFi United and led by Aave service providers, aims to restore support for rsETH, the yield-bearing derivative token of ether (ETH) at the center of the exploit. Aave founder Stani Kulecho stated, "I am personally contributing 5,000 ETH to DeFi United as we continue to collaborate with our partners." With ether's current price of approximately $2,346, his personal contribution is valued at $11,730,000.
The exploit was traced back to a vulnerability in KelpDAO's integration with LayerZero, where an attacker minted 116,500 unbacked rsETH tokens, resulting in impaired collateral for Aave and triggering a deposit run as lenders rushed to exit, ultimately withdrawing $10 billion. The primary focus of the effort to eliminate the bad debt is on stabilizing the system through a coordinated bailout to recapitalize rsETH and minimize losses. The second-largest exploit this year occurred in late March, when an attacker drained at least $270 million from the Drift Protocol on Solana by exploiting a legitimate feature called 'durable nonces,' rather than leveraging a code bug or stolen keys.