Aave and several major crypto companies are coordinating a turnaround effort to stabilize decentralized finance (DeFi) markets after a $292 million exploit left the industry’s largest lender struggling with a large hole in collateral.
The initiative, dubbed “DeFi United” and led by service providers Aave, aims to restore support for rsETH, a yield-bearing ether (ETH) derivative token, which is at the center of the exploit.
Aave said in an article on X that several participants had already indicated their commitment to supporting the effort.
The first of these was staking provider Lido Finance, whose ecosystem contributor Lido Labs Foundation proposed allocating up to 2,500 stETH, worth approximately $5.7 million at current prices, into a dedicated backup vehicle.
The funds would be used to reduce the rsETH support gap and help prevent forced liquidations in lending markets.
This was followed by EtherFi offering a 5,000 ETH plan to “protect users and prevent bad debt” in DeFi.
Stani Kulechov, founder of Aave, proposed a contribution of 5,000 ETH.
“Aave is my life’s work and we are constantly working to find the best possible outcome for users,” he said in an X post. “I am working to get this resolved and market conditions normalized as quickly as possible.”
Aave said it plans to announce more commitments once formalized.
Harnessing Ripples Across DeFi
The initiative comes after the biggest crypto exploit of the year shook DeFi lending markets.
The incident dates back to a vulnerability in KelpDAO’s integration with LayerZero, where an attacker created 116,500 unbacked rsETH tokens by exploiting the bridge’s messaging system.
Instead of getting rid of the tokens, the attacker deposited nearly 90,000 rsETH into Aave as collateral, borrowing around $190 million in ETH and other assets on Ethereum and Arbitrum.
This left Aave with impaired collateral, triggering a run on deposits as lenders rushed to withdraw available funds. Aave’s total asset value plunged by $10 billion following the incident.
The total hole is estimated to be worth more than 112,000 rsETH, according to Aave’s incident report.
Before the DeFi United initiative, there were early containment efforts. Earlier this week, Arbitrum’s security board froze 30,766 ETH, worth approximately $71 million, related to the exploit.
However, the remainder of the stolen funds were backfilled and exchanged into Bitcoin via Thorchain, making recovery more complex.
The current effort focuses less on recovering funds and more on stabilizing the system with a coordinated rescue plan to recapitalize rsETH and mitigate losses.
