In the aftermath of a $292 million exploit, Aave and several prominent crypto firms have launched a collaborative recovery effort, dubbed 'DeFi United,' to shore up decentralized finance markets. The initiative, led by Aave service providers, aims to restore the collateral backing of rsETH, a yield-bearing ether derivative token at the center of the hack. Aave has announced that multiple participants have already committed to supporting the effort, with staking provider Lido Finance's ecosystem contributor, Lido Labs Foundation, proposing to allocate up to 2,500 stETH, valued at approximately $5.7 million, to a dedicated relief fund. This fund would be used to reduce the shortfall in rsETH backing and prevent forced liquidations across lending markets.
EtherFi has also proposed a 5,000 ETH plan to 'protect users and prevent bad debt' across DeFi, while Aave founder Stani Kulechov has pledged a 5,000 ETH contribution. Kulechov stated, 'Aave is my life's work, and we're working tirelessly to achieve the best possible outcome for users.' Aave plans to announce additional commitments once they are formalized.
The initiative follows the largest crypto exploit of the year, which sent shockwaves through DeFi lending markets. The incident occurred due to a vulnerability in KelpDAO's integration with LayerZero, allowing an attacker to mint 116,500 unbacked rsETH tokens. Instead of selling the tokens, the attacker used nearly 90,000 rsETH as collateral on Aave, borrowing approximately $190 million in ETH and other assets across Ethereum and Arbitrum.
This left Aave with impaired collateral, triggering a rush of withdrawals and a $10 billion decline in the platform's total asset value. The total shortfall is estimated to be over 112,000 rsETH, according to Aave's incident report. Prior to the DeFi United initiative, some early containment efforts were made, including Arbitrum's security council freezing 30,766 ETH, worth roughly $71 million, tied to the exploit. However, the remaining stolen funds were bridged and swapped into bitcoin via Thorchain, complicating recovery efforts.
The current initiative focuses on stabilizing the system through a coordinated bailout to recapitalize rsETH and mitigate losses, rather than attempting to recover the stolen funds.