Coalition Unveils Technical Plan to Mitigate Aave Token Exploit

Recovering from a $300 million shortfall is an unprecedented task. However, the group leading the Kelp DAO recovery effort is attempting to create a repair guide. DeFi United has devised a detailed, step-by-step proposal to restore rsETH backing after the recent hack sent shockwaves through DeFi lending markets, resulting in the release of over 116,000 unaccounted tokens. The plan, shared on Aave's official X account, resembles a coordinated cleanup operation, relying heavily on Aave's infrastructure to rectify the damage and stabilize markets. The incident occurred on April 18 when an attacker exploited an rsETH bridge vulnerability by forging a legitimate message, tricking the Ethereum side into releasing 116,500 rsETH without proper backing. These tokens were dispersed across multiple wallets and deployed in DeFi, with a significant portion used as collateral on Aave and other lending platforms, leading to a systemic issue where protocols like Aave held unbacked collateral. According to the proposal, most 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 backing and the unwinding of loans created using the extra tokens simultaneously. The group claims to have secured sufficient ETH commitments to fully re-collateralize rsETH, planning to feed the ETH back into the system in stages, converting it to rsETH, and depositing it to restore the token's backing. Meanwhile, the plan focuses on the lending markets where the damage is most evident, intending to carefully unwind the mess instead of letting it play out chaotically. A key aspect 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 temporarily adjusting rsETH's valuation to enable a more controlled liquidation or closure of these positions, potentially freeing up around 13,000 ETH from Aave. Once the collateral is recovered, it will be converted into ETH to cover the exploit-created shortfall. Although the process carries risks, including governance approvals and fund deployment, it represents a more coordinated response than DeFi has previously managed. If executed as intended, the goal is to fully restore rsETH backing and stabilize affected markets.