Coalition Unveils Plan to Mitigate Aave Token Exploit

The aftermath of a $300 million exploit typically doesn't come with a straightforward repair guide. However, the group leading the Kelp DAO recovery effort is working to create one. DeFi United, a coalition comprising multiple blockchain projects and individuals from the crypto ecosystem, has devised a detailed, step-by-step plan to reestablish the backing of rsETH following this month's Kelp DAO hack, which released over 116,000 unaccounted tokens and disrupted DeFi lending markets. The proposal, shared on Aave's official X account, resembles a coordinated effort to utilize Aave's infrastructure and stabilize the markets. The incident originated on April 18 when an attacker exploited a vulnerability in rsETH's bridge, forging a message that appeared legitimate and tricking the system into releasing 116,500 rsETH without backing. These tokens were dispersed across multiple wallets and utilized as collateral on Aave and other lending platforms, rendering the issue systemic. According to the proposal, the majority of the exploited funds remain active, with approximately 107,000 of the original 116,500 rsETH still tied to positions on 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 and plans to reintroduce this ETH into the system in stages. Concurrently, the plan focuses on the lending markets, where the damage is most pronounced. Rather than allowing the situation to unfold chaotically, the proposal suggests a controlled unwinding of the affected positions. A key aspect of this involves addressing the positions the attacker opened on Aave, which are essentially loans backed by rsETH that should not have existed. By temporarily adjusting rsETH's valuation within the system, these bad positions can be liquidated or closed more smoothly, potentially recovering around 13,000 ETH from Aave. Once the collateral is recovered, it will be converted into ETH to cover the shortfall created by the exploit. Although the process carries risks, including the need for governance approvals and successful fund deployment, it represents a more coordinated response than previously seen in DeFi. If executed as intended, the ultimate goal is to fully restore rsETH's backing and stabilize the affected markets.