Decentralized lending platform Aave has successfully raised approximately $160 million to address the $200 million in bad debt resulting from the largest DeFi exploit of the year, as reported by Arkham on social media. The blockchain analytics firm stated, "Aave has raised $160M to cover the bad debt from the Kelp DAO Exploit, facilitated through defiunited.eth.
Notably, the largest contributors, Mantle and AAVE DAO, have collectively raised 55,000 ETH, equivalent to $127M. Following a $292 million security breach that left the largest lender in the crypto borrowing sector facing a financial crisis, Aave and several prominent crypto firms launched a coordinated recovery effort to stabilize DeFi markets last week.
Led by Aave service providers, the initiative, known as DeFi United, aims to restore support for rsETH, the yield-bearing derivative token of ether (ETH) at the heart of the exploit. Aave founder Stani Kulecho announced, "I am personally contributing 5,000 ETH to DeFi United as we continue to collaborate with our partners." With the current ether price of approximately $2,346, his personal contribution is valued at $11,730,000. The exploit was traced back to a vulnerability in the KelpDAO integration with LayerZero, where an attacker created 116,500 unbacked rsETH tokens. This resulted in Aave having impaired collateral, triggering a run on deposits as lenders rushed to exit, ultimately leading to $10 billion in withdrawals.
The primary focus of the effort to eliminate the bad debt is on stabilizing the system through a coordinated bailout to recapitalize rsETH and mitigate losses. The second-largest exploit this year occurred in late March, when an attacker exploited a legitimate feature called 'durable nonces' on the Drift Protocol on Solana, draining at least $270 million, rather than exploiting a code bug or stolen keys.