Decentralized lending platform Aave has successfully raised approximately $160 million to mitigate the $200 million in bad debt resulting from the Kelp DAO exploit, as reported by Arkham on Saturday. The platform stated, 'To date, AAVE has secured $160M to cover the bad debt from the Kelp DAO Exploit, via defiunited.eth. Notably, Mantle and AAVE DAO have collectively contributed 55,000 ETH, valued at $127M.' Following a $292 million security breach that impacted DeFi markets, Aave and major crypto firms launched a coordinated recovery effort, dubbed DeFi United, to stabilize the sector.
Led by Aave service providers, the initiative aims to restore support for rsETH, the yield-bearing derivative token of ether at the center of the exploit. Aave's founder, Stani Kulecho, has personally pledged 5,000 ETH to DeFi United, valued at approximately $11.7 million at the current ether price.
The exploit, which originated from a vulnerability in KelpDAO's integration with LayerZero, allowed an attacker to mint 116,500 unbacked rsETH tokens, leaving Aave with impaired collateral and triggering a deposit run that resulted in $10 billion in withdrawals. The primary focus of the effort to eliminate the bad debt is on system stabilization through a coordinated bailout, aimed at recapitalizing rsETH and minimizing losses.
This incident is the largest DeFi exploit of the year, surpassed only by the Drift Protocol exploit on Solana in late March, which saw an attacker drain at least $270 million by exploiting a legitimate feature called 'durable nonces'.