Coalition Unveils Plan to Mitigate $300 Million Crypto Exploit

The aftermath of a $300 million exploit usually doesn't come with a straightforward repair guide. However, DeFi United, a coalition comprising multiple blockchain projects and crypto ecosystem stakeholders, has outlined a detailed, step-by-step strategy to restore the backing of rsETH following this month's Kelp DAO breach, which significantly impacted DeFi lending markets. The proposal, shared on Aave's official X account, resembles a coordinated recovery operation, heavily reliant on Aave's infrastructure to rectify the damage and stabilize the markets. The plan addresses the exploit that occurred on April 18, when an attacker exploited a vulnerability in rsETH's bridge by forging a legitimate message, tricking the Ethereum side into releasing 116,500 rsETH without actual backing. These tokens were not idle; they were dispersed across multiple wallets and utilized across DeFi, with a substantial portion used as collateral on Aave and other lending platforms. This led to protocols like Aave holding collateral that was temporarily under-backed. According to the proposal, most 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. This presents a dual challenge: restoring rsETH's backing and unwinding the loans created using those extra tokens. DeFi United's proposal aims to tackle both issues simultaneously. To restore backing, the group has secured sufficient ETH commitments to fully re-collateralize rsETH, planning to feed this ETH back into the system in stages, converting it to rsETH, and depositing it back into the system to ensure the token is fully backed. Concurrently, attention is focused on the lending markets where the damage is most evident. Instead of allowing a chaotic resolution, the plan involves a controlled unwind of the affected positions. A significant part of this process involves addressing the positions the attacker opened on Aave, essentially loans backed by rsETH that should not have existed. Rather than waiting for these loans to collapse, causing further market disruption, the proposal suggests a more controlled closure. Temporarily adjusting rsETH's valuation within the system will facilitate the smooth liquidation or closure of these bad positions, allowing the recovery of underlying assets like ETH. The proposal estimates this could free up around 13,000 ETH from Aave alone, which would then be converted to ETH and used to cover the exploit-created shortfall. The process carries risks, dependent on governance approvals across multiple chains, the successful deployment of committed funds, and a smooth execution of the unwind. Nonetheless, the plan represents a more coordinated response than previously seen in DeFi. If executed as intended, the ultimate goal is clear: full restoration of rsETH backing and stabilization of all affected markets.