In the aftermath of a $292 million exploit, Aave and several prominent crypto firms are collaborating on a recovery effort to stabilize decentralized finance (DeFi) markets. The initiative, known as "DeFi United", aims to restore the collateral backing of rsETH, a yield-bearing derivative token of ether (ETH), which was at the center of the exploit.
Aave has announced that multiple participants have already committed to supporting the effort, with 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. Additionally, EtherFi has proposed a 5,000 ETH plan to protect users and prevent bad debt across DeFi. Aave's founder, Stani Kulechov, has also pledged 5,000 ETH to support the recovery effort.
The goal of the initiative is to reduce the shortfall in rsETH backing and prevent forced liquidations across lending markets. 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 around $190 million in ETH and other assets. This left Aave with impaired collateral, triggering a run on deposits and a subsequent plunge in the total value of assets on the platform. The current effort focuses on stabilizing the system through a coordinated bailout, rather than attempting to recover the stolen funds.