Aave and several major crypto firms are coordinating a recovery effort to stabilize decentralized finance (DeFi) markets after a $292 million bailout left the sector’s biggest lender struggling with a huge collateral gap.
The initiative, called “DeFi United” and led by Aave service providers, aims to restore support for rsETH, a dividend-bearing derivative token of ether (ETH) that is at the center of the exploit.
Aave said in a post on X that several participants have already pledged to support the effort.
First among them was stake provider Lido Finance, whose ecosystem contributor Lido Labs Foundation made a proposal to allocate up to 2,500 stETH, worth around $5.7 million at current prices, to a dedicated relief vehicle.
The funds will be used to reduce the lack of rsETH support and help prevent foreclosures across loan markets.
That was followed by EtherFi proposing a 5,000 ETH plan to “protect users and prevent bad debts” across DeFi.
Stani Kulechov, founder of Aave, offered a contribution of 5,000 ETH.
“Aave is my life’s work, and we work nonstop to find the best possible outcome for users,” he said in an X post. “I am working to see this resolved and market conditions normalized as soon as possible.”
Aave said it plans to announce more commitments once they are formalized.
Take advantage of ripples across DeFi
The initiative comes after the biggest crypto exploit of the year rattled the DeFi lending markets.
The incident is traced back to a vulnerability in KelpDAO’s integration with LayerZero, where an attacker minted 116,500 unbacked rsETH tokens by exploiting the bridge’s messaging system.
Instead of dumping the tokens, the attacker deposited nearly 90,000 rsETH in Aave as collateral and borrowed about $190 million in ETH and other assets across Ethereum and Arbitrum.
That left Aave with deteriorated collateral, triggering a run on deposits as lenders rushed to withdraw available funds. The total value of the assets of Aave fell by $10 billion after the incident.
The total hole is estimated to be more than 112,000 rsETH, according to Aave’s incident report.
Before the DeFi United initiative, there have been some early containment efforts. Earlier this week, Arbitrum’s security board froze 30,766 ETH, worth about $71 million at the time, tied to the exploit.
However, the remainder of the stolen funds were bridged and exchanged for bitcoin via Thorchain, making recovery more complex.
Current efforts focus less on recovering funds and more on stabilizing the system with a coordinated bailout to recapitalize rsETH and mitigate losses.
