Crypto Coalition Unveils Plan to Mitigate Aave Token Exploit

Typically, a $300 million shortfall doesn't come with a straightforward repair guide. However, the group leading the Kelp DAO recovery effort is attempting to create one. DeFi United, a coalition comprising multiple blockchain projects and crypto ecosystem individuals, has outlined a detailed, step-by-step plan to restore rsETH's backing after this month's Kelp DAO hack sent shockwaves through DeFi lending markets, releasing over 116,000 unaccounted-for tokens. The proposal, shared on Aave's official X account, resembles a coordinated cleanup operation, relying heavily on Aave's infrastructure to rectify the damage and restore market stability. The incident originated on April 18, when an attacker exploited a vulnerability in rsETH's bridge, forging a message that appeared legitimate and tricking the Ethereum side of the system into releasing 116,500 rsETH, creating a large batch of rsETH without backing. These tokens were disseminated across multiple wallets and deployed throughout DeFi, with a significant portion used as collateral on Aave and other lending platforms. This is where the issue became systemic: protocols like Aave found themselves holding collateral that wasn't fully backed. According to the proposal, most of the exploited funds remain active, with approximately 107,000 of the original 116,500 rsETH still tied up in active positions across Aave and Compound. This presents two problems to be solved simultaneously: restoring rsETH's actual backing and unwinding the loans created using those extra tokens. DeFi United's proposal aims to address both aspects of the equation. On the backing side, the group claims to have secured sufficient ETH commitments to fully re-collateralize rsETH, planning to feed that ETH back into the system in stages, converting it to rsETH, and depositing it back into the system to ensure the token is once again fully backed. Meanwhile, attention shifts to the lending markets where the damage is most visible. Rather than allowing things to unfold chaotically, the plan is to intervene and carefully unwind the mess. A significant part of this involves dealing with the positions the attacker opened on Aave, essentially loans backed by rsETH that shouldn't have existed. Instead of waiting for those loans to collapse, the proposal suggests nudging the system to enable those bad positions to be closed out more smoothly. By temporarily adjusting how rsETH is valued within the system, those positions can be liquidated or closed more efficiently, allowing the underlying assets, such as ETH, to be recovered. The proposal estimates this could free up around 13,000 ETH from Aave alone. Once that collateral is recovered, it will be converted into ETH and used to cover the shortfall created by the exploit, effectively filling the hole left behind. Although the process carries risks, it hinges on governance approvals across multiple chains, the successful deployment of committed funds, and a smooth execution of the unwind. Nevertheless, the plan reflects a more coordinated response than DeFi has often managed previously. If executed as intended, the ultimate goal is clear: 'rsETH backing is fully restored, and all affected markets are stabilized,' as the proposal states.