Crypto Coalition Unveils Plan to Mitigate Aave Token Exploit

A $300 million deficit typically doesn't come with a straightforward repair guide. However, the group leading the Kelp DAO recovery efforts is attempting to create one. DeFi United, a coalition of multiple blockchain projects and crypto ecosystem individuals, has outlined a detailed, step-by-step plan to reestablish the backing of rsETH 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 stabilize markets. The incident originated on April 18, when an attacker exploited a vulnerability in rsETH's bridge, tricking the Ethereum side of the system into releasing 116,500 rsETH, which were then distributed across multiple wallets and deployed in DeFi, with a significant portion used as collateral on Aave and other lending platforms. This created a systemic issue, as protocols like Aave found themselves 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 up in positions across Aave and Compound. DeFi United's proposal aims to address both the backing of rsETH and the unwind of loans created using those tokens. The group claims to have secured sufficient ETH commitments to fully re-collateralize rsETH, which will be fed back into the system in stages. Meanwhile, the plan involves carefully unwinding the damage in lending markets by temporarily adjusting rsETH's valuation, enabling the closure of bad positions and the recovery of underlying assets like ETH. The proposal estimates this could free up around 13,000 ETH from Aave alone, which will be converted into ETH to cover the shortfall created by the exploit. While the process carries risks, it reflects a more coordinated response than DeFi has previously managed. If executed successfully, the goal is to fully restore rsETH backing and stabilize affected markets.