Coalition Unveils Plan to Mitigate Aave Token Exploit

Unlike typical financial crises, this $300 million shortfall may have a structured recovery plan. DeFi United, a coalition of multiple blockchain projects and crypto ecosystem individuals, has outlined a detailed strategy to restore rsETH backing following the Kelp DAO hack, which sent shockwaves through lending markets and released over 116,000 unaccounted tokens. Their proposal, shared on Aave's official X account, presents a coordinated effort to utilize Aave's infrastructure and stabilize the markets. The issue began on April 18 when an attacker exploited a vulnerability in rsETH's bridge, creating 116,500 rsETH without backing by tricking the system into releasing funds that hadn't actually moved. These tokens were then distributed across multiple wallets and used as collateral on lending platforms like Aave, causing systemic problems as protocols held unbacked collateral. According to the proposal, most of the exploited funds remain in active positions across Aave and Compound, totaling roughly 107,000 of the original 116,500 rsETH. To address this, DeFi United aims to restore rsETH backing and unwind the loans created using the extra tokens simultaneously. The group claims to have secured enough ETH commitments to fully re-collateralize rsETH, planning to feed this ETH back into the system in stages to ensure the token is fully backed once more. Meanwhile, attention will be focused on the lending markets to carefully unwind the damage. This involves dealing with the positions the attacker opened on Aave, essentially loans backed by rsETH that shouldn't exist, by temporarily adjusting rsETH's valuation to enable these bad positions to be liquidated or closed more smoothly. As these positions are unwound, the underlying assets like ETH can be recovered, potentially freeing up around 13,000 ETH from Aave alone. This collateral will then be converted into ETH and used to cover the shortfall created by the exploit. While the process carries risks, including the need for governance approvals and smooth execution, the plan represents a more coordinated response than previously seen in DeFi. The ultimate goal, as stated in the proposal, is to fully restore rsETH backing and stabilize all affected markets.