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

The aftermath of a $300 million exploit typically doesn't come with a straightforward repair guide. However, DeFi United, a coalition comprising multiple blockchain projects and crypto ecosystem stakeholders, is attempting to create one. Their detailed, step-by-step proposal outlines a plan to restore rsETH backing following the Kelp DAO hack, which sent shockwaves through DeFi lending markets after releasing over 116,000 unaccounted-for tokens. Circulated on Aave's official X account, the proposal reads like a coordinated recovery effort, heavily reliant 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 by forging a legitimate message, tricking the Ethereum side into releasing 116,500 rsETH without actual backing. These tokens were subsequently dispersed 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 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 restoration of rsETH backing and the unwinding of loans created using the exploited tokens. To re-collateralize rsETH, the group has secured sufficient ETH commitments, which will be fed back into the system in stages, converting it to rsETH and depositing it to restore full backing. Concurrently, attention will shift to the lending markets, where the plan is to carefully unwind the damage rather than allowing a chaotic outcome. A key aspect involves dealing with the attacker's positions on Aave, essentially loans backed by rsETH that should not have existed. Rather than waiting for these loans to collapse, the proposal suggests temporarily adjusting rsETH's valuation within the system to facilitate smoother liquidation or closure of these positions. As these positions are unwound, underlying assets like ETH can be recovered, potentially freeing up around 13,000 ETH from Aave. Once this collateral is recovered, it will be converted to ETH and used to cover the exploit-created shortfall, essentially filling the hole left behind. The process carries risks, relying on governance approvals across multiple chains, successful deployment of committed funds, and smooth execution of the unwind. Despite these challenges, the plan represents a more coordinated response than DeFi has often managed. If executed as intended, the goal is clear: full restoration of rsETH backing and stabilization of affected markets.