In the aftermath of a devastating $292 million hack, Aave has joined forces with several prominent cryptocurrency firms to launch a comprehensive recovery effort, aimed at stabilizing the decentralized finance (DeFi) market. The collaborative initiative, dubbed 'DeFi United', seeks to restore the backing of rsETH, a yield-bearing ether (ETH) derivative token at the epicenter of the exploit. Aave has announced that multiple participants have already committed to supporting the effort, with staking provider Lido Finance and EtherFi being among the first to offer aid. Lido Labs Foundation, an ecosystem contributor, has proposed allocating up to 2,500 stETH, valued at approximately $5.7 million, to a dedicated relief fund.
This fund will be utilized to reduce the shortfall in rsETH backing, thereby preventing forced liquidations across lending markets. Additionally, EtherFi has proposed a 5,000 ETH plan to safeguard users and prevent bad debt across DeFi.
Aave's founder, Stani Kulechov, has also pledged a 5,000 ETH contribution, stating that 'Aave is my life's work and we're working tirelessly to find the best possible outcome for users.' The initiative follows the largest crypto exploit of the year, which has sent shockwaves through DeFi lending markets. The incident, which occurred due to a vulnerability in KelpDAO's integration with LayerZero, allowed an attacker to mint 116,500 unbacked rsETH tokens. Instead of selling the tokens, the attacker deposited nearly 90,000 rsETH into Aave as collateral, borrowing approximately $190 million in ETH and other assets across Ethereum and Arbitrum. This has resulted in Aave having impaired collateral, triggering a run on deposits as lenders rush to withdraw available funds.
The total value of assets on Aave has plummeted by $10 billion in the wake of the incident. The estimated total shortfall is over 112,000 rsETH, according to Aave's incident report.
Prior to the DeFi United initiative, there have been some early containment efforts, including Arbitrum's security council freezing 30,766 ETH, worth approximately $71 million, tied to the exploit. However, the remaining stolen funds have been bridged and swapped into bitcoin via Thorchain, making recovery more complex.
The current effort focuses on stabilizing the system through a coordinated bailout, aimed at recapitalizing rsETH and mitigating losses, rather than attempting to recover the stolen funds.