A coalition of top crypto firms, led by Aave service providers, has launched a concerted effort to shore up decentralized finance (DeFi) markets in the wake of a devastating $292 million exploit. The initiative, dubbed 'DeFi United', aims to restore the collateral backing of rsETH, a yield-bearing ether (ETH) derivative token at the epicenter of the hack. Aave has announced that multiple participants have already pledged their support, with staking provider Lido Finance and EtherFi being among the first to offer aid.
Lido Labs Foundation has proposed allocating up to 2,500 stETH, valued at approximately $5.7 million, to a relief fund, while EtherFi has put forward a 5,000 ETH plan to safeguard users and prevent bad debt. Aave founder Stani Kulechov has also contributed 5,000 ETH, stressing his commitment to finding the best possible outcome for users and normalizing market conditions as soon as possible. The exploit, which occurred due to a vulnerability in KelpDAO's integration with LayerZero, has sent shockwaves across DeFi lending markets. An attacker minted 116,500 unbacked rsETH tokens, depositing nearly 90,000 into Aave as collateral and borrowing around $190 million in ETH and other assets.
This has resulted in a significant shortfall in rsETH backing, triggering a run on deposits and a $10 billion plunge in Aave's total asset value. While early containment efforts have been made, including the freezing of 30,766 ETH by Arbitrum's security council, the current initiative prioritizes stabilizing the system through a coordinated bailout to recapitalize rsETH and mitigate losses.