Coalition Unveils Plan to Mitigate $300 Million Token Exploit Impact on Aave Users

A $300 million shortfall typically doesn't come with a straightforward repair guide. 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 step-by-step plan to restore rsETH's backing after this month's hack, which released over 116,000 unaccounted-for tokens. The proposal, shared on Aave's official X account, resembles a coordinated cleanup operation that relies heavily on Aave's infrastructure to rectify the damage and stabilize markets. The incident originated on April 18 when an attacker exploited an rsETH bridge vulnerability by forging a legitimate-looking message, tricking the Ethereum side into releasing 116,500 rsETH, thus creating a large batch of tokens without 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. This created a systemic issue, as protocols like Aave found themselves 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 two challenges: restoring rsETH's backing and unwinding the loans created using the extra tokens. DeFi United's proposal aims to address both issues simultaneously. To restore backing, the group has secured sufficient ETH commitments to fully re-collateralize rsETH, which will be fed back into the system in stages. Concurrently, attention will shift to the lending markets where the damage is most visible, with a plan to carefully unwind the mess. This involves dealing with the positions the attacker opened on Aave, which are essentially loans backed by rsETH that shouldn't have existed. Rather than allowing these loans to collapse chaotically, the proposal suggests a controlled closure. Temporarily adjusting rsETH's valuation within the system will enable these bad positions to be liquidated or closed more smoothly, allowing the underlying assets to be recovered. The proposal estimates this could free up around 13,000 ETH from Aave alone. Once the collateral is recovered, it will be converted into ETH and used to cover the shortfall created by the exploit. The process is not without risk, as it relies on governance approvals across multiple chains, the successful deployment of committed funds, and a smooth execution of the unwind. Nevertheless, the plan reflects a more coordinated response than DeFi has often managed previously. If executed as intended, the ultimate goal is to fully restore rsETH's backing and stabilize all affected markets.