Coalition Unveils Plan to Mitigate Aave Token Exploit

The aftermath of a $300 million exploit typically doesn't come with a straightforward repair guide. However, DeFi United, a coalition comprising multiple blockchain projects and crypto ecosystem players, is attempting to create one. The group has outlined a detailed, step-by-step plan to restore the backing of rsETH following the Kelp DAO hack, which sent shockwaves through lending markets and released over 116,000 unaccounted-for tokens. The proposal, shared on Aave's official X account, resembles a coordinated cleanup effort, relying heavily on Aave's infrastructure to rectify the damage and stabilize markets. The incident originated on April 18, when an attacker exploited a vulnerability in rsETH's bridge, forging a message that appeared legitimate and tricking the Ethereum side of the system into releasing 116,500 rsETH. These tokens were then dispersed across multiple wallets and utilized across DeFi, with a substantial portion used as collateral on Aave and other lending platforms. As a result, 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. DeFi United's proposal aims to address both the restoration of rsETH's backing and the unwinding of loans created using the extra tokens. The group claims to have secured sufficient ETH commitments to fully re-collateralize rsETH and plans 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. Simultaneously, the plan focuses on the lending markets where the damage is most visible, seeking to carefully unwind the chaos rather than letting it play out. A key aspect involves dealing with the positions the attacker opened on Aave, which are essentially loans backed by rsETH that should not have existed. Instead of waiting for these loans to collapse, the proposal suggests temporarily adjusting how rsETH is valued within the system to enable the liquidation or closure of these positions in a more controlled manner. As these positions are unwound, the underlying assets, such as ETH, can be recovered, with the proposal estimating that around 13,000 ETH could be freed up from Aave alone. Once this collateral is recovered, it will be converted into ETH and used to cover the shortfall created by the exploit, effectively filling the gap left behind. Although the process is not without risk, relying on governance approvals across multiple chains, the successful deployment of committed funds, and smooth execution, the plan represents 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.