In the aftermath of a $292 million exploit, Aave and several prominent cryptocurrency firms have launched a collaborative effort to stabilize the decentralized finance (DeFi) market. The initiative, known as 'DeFi United', aims to restore the collateral backing of rsETH, a yield-bearing ether (ETH) derivative token at the center of the exploit. Aave has announced that multiple participants have already committed to supporting the effort, with staking provider Lido Finance and EtherFi being among the first to offer aid. Lido Labs Foundation has proposed allocating up to 2,500 stETH, valued at approximately $5.7 million, to a dedicated relief fund, while EtherFi has proposed a 5,000 ETH plan to protect users and prevent bad debt across DeFi.
Aave founder Stani Kulechov has also pledged 5,000 ETH, stating that 'Aave is my life's work and we're working nonstop to find the best possible outcome for users.' The exploit, which occurred due to a vulnerability in KelpDAO's integration with LayerZero, resulted in the attacker minting 116,500 unbacked rsETH tokens. The attacker then deposited nearly 90,000 rsETH into Aave as collateral, borrowing approximately $190 million in ETH and other assets.
This has left Aave with impaired collateral, triggering a run on deposits and a $10 billion plunge in the total value of assets on the platform. The total shortfall is estimated to be over 112,000 rsETH, according to Aave's incident report.
Prior to the DeFi United initiative, there were some early containment efforts, including Arbitrum's security council freezing 30,766 ETH worth roughly $71 million. However, the remaining stolen funds were bridged and swapped into bitcoin via Thorchain, making recovery more complex.
The current effort focuses on stabilizing the system through a coordinated bailout to recapitalize rsETH and mitigate losses, rather than attempting to recover the stolen funds.