Crypto Coalition Unveils Plan to Mitigate Aave User Losses Following Massive Token Exploit

Typically, a $300 million deficit does not come with a straightforward repair manual. However, the group leading the Kelp DAO recovery effort is attempting to create one. DeFi United, a coalition comprising multiple blockchain projects and crypto ecosystem individuals, has outlined a detailed, step-by-step plan to restore the backing of rsETH following this month’s Kelp DAO hack, which released over 116,000 unaccounted tokens and disrupted DeFi lending markets. The proposal, shared on Aave’s official X account, resembles a coordinated cleanup operation, heavily reliant on Aave’s infrastructure to undo the damage and stabilize markets. The incident originated on April 18, when an attacker exploited a vulnerability in rsETH’s bridge, tricking the Ethereum side into releasing 116,500 rsETH without proper backing. These tokens were dispersed across multiple wallets and utilized across DeFi, with a significant portion used as collateral on Aave and other lending platforms, resulting in protocols like Aave holding unbacked collateral. According to the proposal, most of the exploited funds remain active, with roughly 107,000 of the original 116,500 rsETH still tied up in positions across Aave and Compound. DeFi United’s proposal aims to address both the restoration of rsETH’s backing and the unwinding of loans created using those 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. Meanwhile, the plan involves carefully unwinding the mess in lending markets by dealing with the attacker’s positions on Aave, which are essentially loans backed by rsETH that should not have existed. Temporarily adjusting rsETH’s valuation within the system will enable these bad positions to be liquidated or closed more smoothly, potentially freeing up around 13,000 ETH from Aave alone. Once this collateral is recovered, it will be converted into ETH to cover the shortfall created by the exploit. The process is not without risk, relying on governance approvals across multiple chains, the successful deployment of committed funds, and smooth execution of the unwind. Nevertheless, the plan reflects a more coordinated response than DeFi has often managed previously, with the ultimate goal of fully restoring rsETH’s backing and stabilizing affected markets.