Coalition Unveils Technical Proposal to Mitigate Aave Token Exploit

The aftermath of a $300 million exploit typically doesn't come with a straightforward solution. However, the group leading the Kelp DAO recovery effort is working to create one. DeFi United, a coalition of various blockchain projects and crypto ecosystem individuals, has outlined a step-by-step plan to restore the backing of rsETH following this month's hack, which sent shockwaves through lending markets and released over 116,000 unaccounted tokens. The proposal, shared on Aave's official X account, details a coordinated effort to utilize Aave's infrastructure and rectify the damage, thereby stabilizing the markets. The incident began on April 18 when an attacker exploited a vulnerability in rsETH's bridge by forging a legitimate message, tricking the Ethereum side into releasing 116,500 rsETH without backing. These tokens were then distributed across multiple wallets and deployed in DeFi, with a significant portion used as collateral on Aave and other lending platforms, leading to protocols holding unbacked collateral. According to the proposal, most of the exploited funds remain active, with around 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 restoration of rsETH's backing and the unwinding of loans created using the extra tokens. The group claims to have secured enough ETH commitments to fully re-collateralize rsETH and plans to feed this ETH back into the system in stages. Meanwhile, the proposal focuses on carefully unwinding the mess in lending markets by dealing with the attacker's positions on Aave, which are essentially loans backed by rsETH that should not have existed. By temporarily adjusting rsETH's valuation, these bad positions can be liquidated or closed more smoothly, recovering underlying assets like ETH. The proposal estimates this could free up around 13,000 ETH from Aave alone, which can then be converted into ETH to cover the shortfall created by the exploit. Although the process carries risks, including governance approvals and the successful deployment of committed funds, the plan represents a coordinated response. If executed as intended, the ultimate goal is to fully restore rsETH backing and stabilize affected markets.