In the wake of a $292 million exploit, Aave and several prominent cryptocurrency firms have collaborated on a recovery effort, dubbed 'DeFi United', aimed at stabilizing the decentralized finance (DeFi) sector. The initiative seeks to address the significant shortfall in collateral backing for rsETH, a yield-bearing ether (ETH) derivative token at the center of the exploit. Aave has announced that multiple participants have already committed to supporting the effort, with Lido Finance's ecosystem contributor, Lido Labs Foundation, proposing to allocate up to 2,500 stETH, valued at approximately $5.7 million, into a dedicated relief fund. This contribution is intended to reduce the rsETH backing deficit and prevent forced liquidations across lending markets.
EtherFi has also proposed a 5,000 ETH plan to 'protect users and prevent bad debt' across DeFi, while Aave's founder, Stani Kulechov, has pledged a 5,000 ETH contribution. Kulechov emphasized that 'Aave is my life's work and we're working nonstop to find the best possible outcome for users', aiming to resolve the situation and normalize market conditions as soon as possible.
The initiative follows the largest crypto exploit of the year, which has sent shockwaves through DeFi lending markets. The incident occurred due to a vulnerability in KelpDAO's integration with LayerZero, allowing an attacker to mint 116,500 unbacked rsETH tokens. Instead of selling the tokens, the attacker used nearly 90,000 rsETH as collateral on Aave, borrowing approximately $190 million in ETH and other assets. This has resulted in impaired collateral on Aave, triggering a rush of withdrawals and a $10 billion decline in the platform's total asset value.
The estimated total shortfall is over 112,000 rsETH, according to Aave's incident report. Prior to the DeFi United initiative, some early containment efforts were made, including the freezing of 30,766 ETH (worth roughly $71 million) by Arbitrum's security council. However, the remaining stolen funds were bridged and swapped into bitcoin via Thorchain, complicating recovery efforts. The current initiative focuses on stabilizing the system through a coordinated bailout, aimed at recapitalizing rsETH and mitigating losses, rather than attempting to recover the stolen funds.