Decentralized lending platform Aave has successfully raised approximately $160 million to address the $200 million in bad debt stemming from the largest decentralized finance exploit of the year, as reported by Arkham on X. The blockchain analytics firm noted, 'So far, AAVE has raised $160M to cover the bad debt from the Kelp DAO Exploit at defiunited.eth.
The primary contributors, Mantle and AAVE DAO, have together raised 55,000 ETH, valued at $127M.' Following a $292 million security breach that left the largest lender in the crypto borrowing sector facing financial instability, Aave and several prominent crypto firms launched a coordinated recovery effort to stabilize DeFi markets. Dubbed DeFi United and led by Aave service providers, the initiative aims to restore support for rsETH, the yield-bearing derivative token of ether at the center of the exploit. Aave founder Stani Kulecho announced a personal contribution of 5,000 ETH to DeFi United, equivalent to $11,730,000 at the current ether price of approximately $2,346.
The exploit, which originated from a KelpDAO integration vulnerability with LayerZero, resulted in an attacker minting 116,500 unbacked rsETH tokens, leaving Aave with impaired collateral and triggering a massive withdrawal of $10 billion as lenders rushed to exit. The primary focus of the recovery effort is to stabilize the system through a coordinated bailout, aimed at recapitalizing rsETH and mitigating losses. This year's second-largest exploit occurred in late March, when an attacker exploited the 'durable nonces' feature of the Drift Protocol on Solana, draining at least $270 million.