In the aftermath of a $292 million exploit, Aave and several prominent cryptocurrency firms have launched a collaborative recovery effort to stabilize the decentralized finance (DeFi) market. The initiative, known as 'DeFi United', aims to restore the backing of rsETH, an ether (ETH) yield-bearing derivative token that was at the center of the exploit. Aave has announced that multiple participants have already committed to supporting the effort, with staking provider Lido Finance being among the first to offer aid, proposing to allocate up to 2,500 stETH, valued at approximately $5.7 million, into a dedicated relief fund. This would help 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. The DeFi United initiative comes in response to the largest crypto exploit of the year, which has 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. The attacker then deposited nearly 90,000 rsETH into Aave as collateral, borrowing around $190 million in ETH and other assets across Ethereum and Arbitrum, leaving Aave with impaired collateral and triggering a run on deposits.
The total value of assets on Aave plummeted by $10 billion following the incident, with the total hole estimated to be over 112,000 rsETH, according to Aave's incident report. Prior to the DeFi United initiative, there were some early containment efforts, 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.