Typically, a $300 million financial gap doesn’t come with an easy fix. However, the team behind Kelp DAO’s recovery efforts is drafting one. DeFi United, comprising various blockchain projects and crypto community members, has introduced a meticulous plan to reinstate rsETH’s backing after a recent hack disrupted DeFi lending markets by releasing over 116,000 unaccounted tokens.
This proposal, shared via Aave’s official X handle, outlines a coordinated operation utilizing Aave’s infrastructure to repair the damage and stabilize the market. The problem began on April 18 when an attacker exploited a vulnerability in rsETH’s bridge. By forging a legitimate-looking message, they deceived Ethereum into releasing 116,500 rsETH under false pretenses, enabling the creation of numerous unbacked tokens.
These tokens were not idle; dispersed across wallets and deployed through DeFi, a significant portion served as collateral on Aave and other platforms. This led to systemic issues, with protocols like Aave holding partially backed collateral.
As per the proposal, about 107,000 of the original 116,500 rsETH remain in active positions within Aave and Compound. The dual challenge is restoring rsETH’s backing while resolving loans created using these tokens.
DeFi United’s plan addresses both issues by securing enough ETH commitments to re-collateralize rsETH, feeding it back into the system incrementally. Concurrently, the focus shifts to affected lending markets.
Instead of chaotic outcomes, the proposal suggests a controlled unwinding process. It involves addressing attacker-created Aave positions that were unjustified loans backed by rsETH. By temporarily adjusting rsETH’s valuation within the system, these positions can be liquidated or closed smoothly, potentially recovering around 13,000 ETH from Aave.
Recovered collateral is converted to ETH to cover the exploit’s shortfall, effectively mending the breach.
This process requires governance approvals across multiple chains and successful fund deployment. Although not without risks, this coordinated response aims to restore rsETH backing fully and stabilize affected markets, as stated in the proposal.