Aave, a lending platform, has successfully raised approximately $160 million to cover the $200 million in bad debt resulting from the largest decentralized finance exploit of the year, as reported by Arkham on Saturday. The platform stated, "AAVE has raised $160M to cover the bad debt from the Kelp DAO Exploit, at defiunited.eth. The largest contributors are Mantle and AAVE DAO, who together raised 55,000 ETH or $127M." This development comes after Aave and several major cryptocurrency firms announced a joint recovery effort to stabilize DeFi markets following a $292 million security breach that left the largest lender in the crypto borrowing sector facing a financial crisis. The initiative, known as DeFi United and led by Aave service providers, aims to restore support for rsETH, the yield-bearing derivative token of ether at the core of the exploit.
Aave founder Stani Kulecho has personally contributed 5,000 ETH to DeFi United, valued at approximately $11,730,000 at the current ether price of $2,346. The exploit, which was caused by a KelpDAO integration vulnerability with LayerZero, allowed an attacker to mint 116,500 unbacked rsETH tokens, resulting in impaired collateral for Aave and triggering a run on deposits as lenders rushed to exit, ultimately withdrawing $10 billion. The effort to eliminate the bad debt is primarily focused on stabilizing the system through a coordinated bailout to recapitalize rsETH and mitigate losses.
This incident is the largest exploit of the year, surpassing the second-largest exploit in late March, in which an attacker drained at least $270 million from the Drift Protocol on Solana by exploiting a legitimate feature called 'durable nonces'.