Crypto Coalition Unveils Recovery Plan for Aave Users Following Massive Token Exploit

The aftermath of a $300 million hack typically doesn't come with a straightforward solution. However, DeFi United, a coalition comprising multiple blockchain projects and crypto ecosystem individuals, is attempting to devise a repair plan. Following this month's Kelp DAO hack, which released over 116,000 unaccounted-for tokens and sent shockwaves through DeFi lending markets, the group has laid out a step-by-step proposal to restore the backing of rsETH. The proposal, which has been circulated on Aave's official X account, outlines a coordinated effort to utilize Aave's infrastructure and stabilize the markets. The incident occurred on April 18 when an attacker exploited a vulnerability in rsETH's bridge, tricking the Ethereum side into releasing 116,500 rsETH without proper backing. These tokens were then dispersed across multiple wallets and utilized across DeFi, with a significant portion used as collateral on Aave and other lending platforms. As a result, protocols like Aave found themselves holding collateral that was not fully backed, creating a systemic problem. According to the proposal, the majority of the exploited funds, approximately 107,000 of the original 116,500 rsETH, remain tied up in active positions across Aave and Compound. DeFi United's proposal aims to address both the restoration of rsETH's backing and the unwinding of loans created using the extra tokens. To re-collateralize rsETH, the group has secured enough ETH commitments and plans to feed it back into the system in stages, converting it to rsETH and depositing it back into the system. Meanwhile, the proposal focuses on carefully unwinding the mess in the lending markets. This involves dealing with the positions the attacker opened on Aave, which are essentially loans backed by rsETH that should not have existed. Rather than allowing these loans to collapse on their own, the proposal suggests temporarily adjusting how rsETH is valued inside the system to enable those bad positions to be closed out more smoothly. As these positions are unwound, the underlying assets, such as ETH, can be recovered. The proposal estimates that this could free up around 13,000 ETH from Aave alone. Once the collateral is recovered, it will be converted into ETH and used to cover the shortfall created by the exploit. Although the process carries risks, including governance approvals across multiple chains and the successful deployment of committed funds, the plan reflects a more coordinated response than DeFi has often managed previously. If executed as intended, the ultimate goal is to fully restore rsETH's backing and stabilize all affected markets.