Coalition Unveils Plan to Mitigate Aave Token Exploit

A $300 million deficit usually doesn't come with a straightforward solution. However, the team driving the Kelp DAO recovery effort is attempting to devise one. DeFi United, a coalition of multiple blockchain projects and crypto ecosystem individuals, has outlined a step-by-step plan to restore the backing of rsETH after this month's Kelp DAO hack, which released over 116,000 unaccounted-for tokens and disrupted DeFi lending markets. The proposal, shared on Aave's official X account, resembles a coordinated recovery operation, 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 by forging a legitimate-looking message, tricking the Ethereum side into releasing 116,500 rsETH without proper backing. These tokens were then dispersed across multiple wallets and deployed in DeFi, with a significant portion used as collateral on Aave and other lending platforms. As a result, protocols like Aave found themselves holding unbacked collateral, making the issue systemic. According to the proposal, most of the exploited funds remain active, with approximately 107,000 of the original 116,500 rsETH still tied up in positions across Aave and Compound. DeFi United's proposal aims to address both the backing of rsETH and the unwinding of loans created using the exploited tokens simultaneously. The group claims to have secured sufficient ETH commitments to fully re-collateralize rsETH, planning to reintroduce the ETH into the system in stages. Meanwhile, attention will be focused on the lending markets, where the damage is most evident. Rather than allowing the situation to unfold chaotically, the plan involves carefully unwinding the mess. A key aspect of this process involves dealing with the positions the attacker opened on Aave, which are essentially loans backed by unbacked rsETH. The proposal suggests that temporarily adjusting rsETH's valuation within the system will enable these positions to be liquidated or closed more smoothly, potentially freeing up around 13,000 ETH from Aave alone. Once the collateral is recovered, it will be converted into ETH to cover the shortfall created by the exploit. Although the process carries risks, it reflects a more coordinated response than DeFi has often managed previously. If executed as intended, the ultimate goal is to fully restore rsETH backing and stabilize affected markets.