Coalition Unveils Plan to Mitigate $300 Million Token Exploit and Stabilize Aave Users

The aftermath of a $300 million exploit usually doesn't come with a straightforward solution. However, the group leading the Kelp DAO recovery effort is attempting to devise one. DeFi United, an alliance of multiple blockchain projects and crypto ecosystem individuals, has outlined a detailed, step-by-step plan to re-establish the backing of rsETH following this month's Kelp DAO hack, which sent shockwaves through DeFi lending markets and released over 116,000 unaccounted tokens. The proposal, shared on Aave's official X account, resembles a coordinated recovery operation that relies heavily on Aave's infrastructure to rectify the damage and stabilize the markets. The incident originated on April 18, when an attacker exploited a vulnerability in rsETH's bridge by forging a message that appeared legitimate, tricking the Ethereum side of the system into releasing 116,500 rsETH, creating a large batch of rsETH without backing. These tokens were not idle; they were dispersed across multiple wallets and utilized across DeFi, with a significant portion used as collateral on Aave and other lending platforms. This is where the issue became systemic: protocols like Aave found themselves holding collateral that was not fully backed. According to the proposal, most of the exploited funds are still active, with approximately 107,000 of the original 116,500 rsETH remaining tied up in active positions across Aave and Compound. This presents two problems to solve simultaneously: restoring the actual backing of rsETH and unwinding the loans created using those extra tokens. DeFi United's proposal aims to address both aspects of the equation. On the backing side, the group claims to have secured enough ETH commitments to fully re-collateralize rsETH. The plan involves feeding this ETH back into the system in stages, converting it to rsETH, and depositing it back into the system to ensure the token is once again fully backed. At the same time, attention is focused on the lending markets where the damage is most visible. Instead of allowing things to unfold chaotically, the plan is to intervene and carefully unwind the mess. A significant part of this involves dealing with the positions the attacker opened on Aave, which are essentially loans backed by rsETH that should not have existed. Rather than waiting for those loans to collapse, the proposal suggests nudging the system to enable those bad positions to be closed more smoothly. Temporarily adjusting how rsETH is valued inside the system will facilitate the liquidation or closure of these positions, allowing the underlying assets, such as ETH, to be recovered. The proposal estimates that this could free up around 13,000 ETH from Aave alone. Once this collateral is recovered, it will be converted into ETH and used to cover the shortfall created by the exploit, effectively filling the hole left behind. The process is not without risk, as it relies on governance approvals across multiple chains, the successful deployment of committed funds, and a smooth execution of the unwind. Nevertheless, the plan reflects a more coordinated response than DeFi has often managed previously. If executed as intended, the ultimate goal is straightforward: the backing of rsETH is fully restored, and all affected markets are stabilized, as stated in the proposal.