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 blockchain analytics platform Arkham on Saturday. Arkham noted, "To date, AAVE has raised $160M to cover the bad debt from the Kelp DAO Exploit, facilitated through defiunited.eth.
The primary contributors, Mantle and AAVE DAO, have collectively raised 55,000 ETH, equivalent to $127 million. In response to the recent $292 million security breach that left Aave facing a financial crisis, the company, along with several major cryptocurrency firms, announced a coordinated recovery initiative to stabilize DeFi markets.
Dubbed DeFi United and led by Aave service providers, the primary objective of this effort is to restore support for rsETH, the yield-bearing derivative token of ether (ETH) that was central to the exploit. Aave founder Stani Kulechov has personally contributed 5,000 ETH to DeFi United, valued at approximately $11,730,000 at the current ether price of roughly $2,346.
This contribution underscores the commitment to collaborative efforts aimed at resolving the crisis. The exploit was traced back to a vulnerability in the KelpDAO integration with LayerZero, where an attacker successfully minted 116,500 unbacked rsETH tokens. This resulted in Aave having impaired collateral, triggering a run on deposits as lenders hastened to exit, culminating in withdrawals totaling $10 billion.
The primary focus of the effort to eliminate the bad debt is on stabilizing the system through a coordinated bailout, aimed at recapitalizing rsETH and mitigating losses. The second-largest exploit this year occurred in late March when an attacker drained a minimum of $270 million from the Drift Protocol on Solana by exploiting 'durable nonces,' a legitimate feature, rather than leveraging a code bug or stolen keys.