Coalition Unveils Technical Proposal to Mitigate Aave Token Exploit

A coalition of blockchain projects and crypto ecosystem individuals is attempting to rectify a $300 million shortfall with a detailed, step-by-step plan. DeFi United's proposal aims to restore the backing of rsETH after this month's Kelp DAO hack sent shockwaves through lending markets, releasing over 116,000 unaccounted-for tokens. The plan, shared on Aave's official X account, involves a coordinated effort to utilize Aave's infrastructure and unwind the damage, thereby stabilizing markets. The incident occurred on April 18 when an attacker exploited a vulnerability in rsETH's bridge, tricking the system into releasing 116,500 rsETH without backing. These tokens were then deployed across DeFi, with a significant portion used as collateral on Aave and other lending platforms, causing protocols to hold unbacked collateral. DeFi United's proposal seeks to address this issue by tackling the backing of rsETH and unwinding the loans created using the exploited tokens. The group claims to have secured sufficient ETH commitments to re-collateralize rsETH and plans to feed this ETH back into the system in stages. Meanwhile, the proposal aims to carefully unwind the lending market mess by temporarily adjusting rsETH's valuation, enabling the closure of bad positions and the recovery of underlying assets. This process is expected to free up around 13,000 ETH from Aave, which will be converted into ETH to cover the shortfall. Although the plan carries risks, it represents a coordinated response to the crisis, with the ultimate goal of fully restoring rsETH's backing and stabilizing affected markets.