Coalition Unveils Plan to Mitigate $300 Million Token Exploit Impact on Aave Users

The aftermath of a $300 million exploit typically doesn’t come with a straightforward solution. However, the group leading the Kelp DAO recovery efforts is attempting to devise one. DeFi United, a coalition of multiple blockchain projects and individuals from the crypto ecosystem, has outlined a detailed, step-by-step proposal to restore the backing of rsETH after the recent hack, which released over 116,000 unaccounted-for tokens and disrupted DeFi lending markets. The plan, shared on Aave’s official X account, resembles a coordinated recovery operation, heavily reliant on Aave’s infrastructure to rectify the damage and stabilize the markets. The incident originated from an exploit on April 18, where an attacker manipulated rsETH’s bridge by forging a legitimate message, tricking the system into releasing 116,500 rsETH without actual backing. These tokens were then dispersed across multiple wallets and utilized across DeFi, with a substantial portion used as collateral on Aave and other lending platforms, resulting in protocols like Aave holding unbacked collateral. According to the proposal, most of the exploited funds remain active, with approximately 107,000 of the original 116,500 rsETH still tied to positions on 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 exploited tokens simultaneously. The group claims to have secured sufficient ETH commitments to fully re-collateralize rsETH, planning to reintegrate this ETH into the system in stages. Meanwhile, the plan focuses on the lending markets, where the damage is most evident, by carefully unwinding the chaos rather than allowing it to play out unpredictably. A key aspect involves dealing with the attacker’s positions on Aave, which are essentially illegitimate loans backed by rsETH. Instead of waiting for these loans to collapse, the proposal suggests a controlled closure by temporarily adjusting rsETH’s valuation within the system, enabling smoother liquidation and recovery of underlying assets like ETH. This could potentially free up around 13,000 ETH from Aave alone. Once the collateral is recovered, it will be converted into ETH to cover the exploit-induced shortfall. Although the process carries risks, including the need for governance approvals and successful fund deployment, it represents a more coordinated response than previously seen in DeFi. The ultimate goal, as stated in the proposal, is to fully restore rsETH backing and stabilize all affected markets.