Coalition Unveils Technical Plan to Mitigate Aave Token Exploit

The aftermath of a $300 million exploit typically doesn't come with a straightforward repair guide. However, DeFi United, a coalition of prominent blockchain projects and crypto ecosystem stakeholders, is attempting to create one. They have outlined a detailed, step-by-step plan to revive the backing of rsETH following the Kelp DAO hack, which sent shockwaves through lending markets and released over 116,000 unaccounted tokens. The proposal, shared on Aave's official X account, resembles a coordinated recovery effort, relying heavily on Aave's infrastructure to rectify the damage and stabilize markets. The incident originated on April 18, when an attacker exploited a vulnerability in rsETH's bridge, tricking the Ethereum side into releasing 116,500 rsETH without proper backing. These tokens were dispersed across multiple wallets and utilized in DeFi, with a substantial portion used as collateral on Aave and other lending platforms. As a result, protocols like Aave found themselves holding collateral that was temporarily under-backed. According to the proposal, the majority of the exploited funds remain active, with approximately 107,000 of the original 116,500 rsETH tied up in positions across Aave and Compound. DeFi United's proposal aims to address both the restoration of rsETH's backing and the unwinding of loans created using the extra tokens. The group claims to have secured sufficient ETH commitments to fully re-collateralize rsETH, which will be fed back into the system in stages. Meanwhile, attention will shift to the lending markets to carefully unwind the damage. The plan involves dealing with the positions the attacker opened on Aave, which are essentially loans backed by rsETH that should not have existed. Rather than allowing these loans to collapse chaotically, the proposal suggests a more controlled approach to close them out. Temporarily adjusting rsETH's valuation within the system will enable these bad positions to be liquidated or closed more smoothly, freeing 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. While the process carries risks, including governance approvals and the successful deployment of committed funds, the plan reflects a more coordinated response than DeFi has often managed previously. If executed as intended, the ultimate goal is to fully restore rsETH's backing and stabilize affected markets.