The decentralized lending platform Aave has successfully raised approximately $160 million to compensate for the $200 million in bad debt resulting from the largest DeFi exploit of the year, as reported by Arkham on X on Saturday. The blockchain analytics platform stated, "So far, AAVE has raised $160M to cover the bad debt from the Kelp DAO Exploit, at defiunited.eth.
The largest contributors, Mantle and AAVE DAO, have together raised 55,000 ETH, valued at $127M." Following a $292 million security breach that left Aave facing a financial crisis, the company and several major crypto firms launched a coordinated recovery effort last week to stabilize DeFi markets. Led by Aave service providers, the initiative, known as DeFi United, aims to restore support for rsETH, the yield-bearing derivative token of ether (ETH) at the core of the exploit.
Aave founder Stani Kulecho announced, "I'm personally contributing 5,000 ETH to DeFi United as we continue working together with partners." With ether's current price of roughly $2,346, his personal contribution is worth approximately $11,730,000. The exploit was traced back to a vulnerability in KelpDAO's integration with LayerZero, where an attacker minted 116,500 unbacked rsETH tokens, leaving Aave with impaired collateral. This triggered a run on deposits as lenders rushed to exit, ultimately withdrawing $10 billion.
The primary focus of the effort to eliminate the bad debt is on stabilizing the system through a coordinated bailout to recapitalize rsETH and minimize losses. The second-largest exploit this year occurred in late March, when an attacker drained at least $270 million from the Drift Protocol on Solana by exploiting a legitimate feature called 'durable nonces,' rather than a code bug or stolen keys.