In the aftermath of a devastating $292 million exploit, Aave and several prominent cryptocurrency firms are collaborating on a comprehensive recovery effort, dubbed 'DeFi United', to stabilize the decentralized finance (DeFi) market. The initiative aims to restore the collateral backing of rsETH, a yield-bearing derivative token of ether (ETH), which was severely impacted by the hack. Aave has announced that multiple participants have already committed to supporting the effort, with 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 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 Stani Kulechov, founder of Aave, has pledged a 5,000 ETH contribution. Kulechov emphasized that 'Aave is my life's work and we're working nonstop to find the best possible outcome for users', and expressed his commitment to resolving the issue and normalizing market conditions as soon as possible. The DeFi United initiative follows the biggest crypto exploit of the year, which exposed 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 approximately $190 million in ETH and other assets across Ethereum and Arbitrum. This left Aave with impaired collateral, triggering a run on deposits and resulting in a $10 billion plunge in the total value of assets on the platform.
The total shortfall is 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 the freezing of 30,766 ETH, worth approximately $71 million, tied to the exploit by Arbitrum's security council. However, the remaining stolen funds were bridged and swapped into bitcoin via Thorchain, making recovery more complex. The current effort focuses on stabilizing the system through a coordinated bailout to recapitalize rsETH and mitigate losses, rather than attempting to recover the stolen funds.