Crypto Coalition Unveils Plan to Mitigate Aave Token Exploit

Unlike typical $300 million losses, this incident may have a detailed recovery plan. DeFi United, a coalition of multiple blockchain projects and crypto ecosystem individuals, has outlined a step-by-step approach to restore the backing of rsETH following the Kelp DAO hack, which sent shockwaves through DeFi lending markets and released over 116,000 unaccounted tokens. The proposal, 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 a vulnerability in rsETH’s bridge by forging a message, tricking the Ethereum side into releasing 116,500 rsETH without actual backing. These tokens were dispersed across multiple wallets and utilized across DeFi, with a significant portion used as collateral on Aave and other lending platforms, causing protocols like Aave to hold unbacked collateral. According to the proposal, most exploited funds remain active, with approximately 107,000 of the original 116,500 rsETH tied up in positions across Aave and Compound. DeFi United’s proposal aims to address both the restoration of rsETH backing and the unwinding of loans created using those tokens. The group claims to have secured sufficient ETH commitments to fully re-collateralize rsETH, planning to feed that ETH back into the system in stages, converting it to rsETH, and depositing it back into the system. Additionally, the plan involves carefully unwinding the mess in lending markets, particularly dealing with positions the attacker opened on Aave, which are essentially loans backed by rsETH that shouldn’t have existed. The proposal suggests temporarily adjusting rsETH valuation to enable the liquidation or closure of these bad positions, allowing the recovery of underlying assets like ETH. This could free up around 13,000 ETH from Aave alone, which would then be converted into ETH and used to cover the shortfall created by the exploit. The process carries risks, relying on governance approvals, successful fund deployment, and smooth execution. However, if executed as intended, the goal is to fully restore rsETH backing and stabilize affected markets.