Aave, a lending platform, has successfully raised approximately $160 million to cover the $200 million in bad debt resulting from the largest decentralized finance exploit of the year, as reported by Arkham on Saturday. The blockchain analytics platform stated, 'AAVE has so far raised $160M to cover the bad debt from the Kelp DAO Exploit, at defiunited.eth.
The largest contributors are Mantle and AAVE DAO, who together raised 55,000 ETH or $127M.' Last week, Aave and several major cryptocurrency firms launched a coordinated recovery effort, known as DeFi United, to stabilize DeFi markets following a $292 million security breach that left the largest lender in the crypto borrowing sector facing a financial crisis. The initiative, led by Aave service providers, aims to restore support for rsETH, the yield-bearing derivative token of ether at the core of the exploit. Aave founder Stani Kulecho announced his personal contribution of 5,000 ETH to DeFi United, valued at approximately $11,730,000 at the current ether price of roughly $2,346.
The exploit is attributed to a vulnerability in the KelpDAO integration with LayerZero, where an attacker minted 116,500 unbacked rsETH tokens, resulting in impaired collateral for Aave and triggering a run on deposits as lenders rushed to exit, ultimately withdrawing $10 billion. The effort to eliminate the bad debt focuses primarily on stabilizing the system through a coordinated bailout to recapitalize rsETH and mitigate losses. Earlier this year, the second-largest exploit 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.'