Coalition Unveils Plan to Mitigate Aave Token Exploit

The aftermath of a $300 million exploit does not typically come with a straightforward repair plan. However, DeFi United, a coalition comprising multiple blockchain projects and crypto ecosystem individuals, has devised a step-by-step proposal to rectify the situation and restore the backing of rsETH. This proposal comes in response to the recent Kelp DAO hack, which resulted in the release of over 116,000 unaccounted-for tokens and sent shockwaves through DeFi lending markets. The plan, which relies heavily on Aave's infrastructure, aims to methodically unwind the damage and stabilize the markets. The incident originated from an attacker exploiting a vulnerability in rsETH's bridge on April 18, resulting in the release of 116,500 rsETH tokens without proper backing. These tokens were subsequently dispersed across multiple wallets and utilized as collateral on various lending platforms, including Aave. As a result, protocols like Aave found themselves holding collateral that was not fully backed, creating a systemic issue. According to the proposal, the majority of the exploited funds remain active, with approximately 107,000 of the original 116,500 rsETH still tied up in positions across Aave and Compound. To address this issue, DeFi United's proposal seeks to restore the backing of rsETH and unwind the loans created using the extra tokens simultaneously. The group claims to have secured sufficient ETH commitments to fully re-collateralize rsETH, which will be fed back into the system in stages. Meanwhile, attention will be focused on the lending markets, where the plan is to carefully unwind the damage rather than allowing it to play out chaotically. A key aspect of this process involves dealing with the positions the attacker opened on Aave, which are essentially loans backed by rsETH that should not have existed. Rather than waiting for these loans to collapse, the proposal suggests temporarily adjusting the valuation of rsETH within the system to enable the liquidation or closure of these positions in a more controlled manner. As these positions are unwound, the underlying assets, such as ETH, can be recovered, potentially freeing up around 13,000 ETH from Aave alone. Once this collateral is recovered, it will be converted into ETH and used to cover the shortfall created by the exploit. Although the process is not without risk, relying on governance approvals across multiple chains, the successful deployment of committed funds, and a smooth execution of the unwind, the plan represents a more coordinated response than DeFi has often managed in the past. If executed as intended, the ultimate goal is to fully restore the backing of rsETH and stabilize all affected markets.