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Aave rallies DeFi partners to contain fallout from $292 million KelpDAO hack
TL;DR
Aave and major crypto firms are launching 'DeFi United' to stabilize DeFi markets after a $292 million KelpDAO hack. The initiative aims to restore backing for rsETH, with Lido Finance committing $5.7 million to the recovery effort.
Key points
- Aave leads recovery effort after $292 million KelpDAO hack
- Initiative named 'DeFi United' aims to stabilize DeFi markets
- Lido Finance commits $5.7 million to support rsETH backing
Mentioned in this story
AaveLido Finance
KelpDAOrsETHstETH
Aave and several major crypto firms are coordinating a recovery effort to stabilize decentralized finance (DeFi) markets after a $292 million exploit left the sector's largest lender grappling with a large hole in collateral backing.
The initiative, dubbed "DeFi United" and led by Aave service providers, is aimed at restoring the backing of rsETH, a yield-bearing derivative token of ether (ETH), at the center of the exploit.
Aave said in a post on X that multiple participants have already made indicative commitments to support the effort.
The first among them was staking provider Lido Finance, whose ecosystem contributor Lido Labs Foundation put forward a proposal to allocate up to 2,500 stETH, worth roughly $5.7 million at current prices, into a dedicated relief vehicle.
The funds would be used to reduce the shortfall in rsETH backing and help prevent forced liquidations across lending markets.
That was followed by EtherFi proposing a 5,000 ETH plan to "protect users and prevent bad debt" across DeFi.
Stani Kulechov, founder of Aave, said he's "personally" contributing 5,000 ETH.
"Aave is my life's work and we're working nonstop to find the best possible outcome for users," he said in an X post. "I’m working to see this resolved and market conditions normalized as soon as possible."
Aave said it plans to announce more commitments once formalized.
Exploit ripples across DeFi
The initiative comes after the biggest crypto exploit of the year rattled DeFi lending markets,
The incident traces 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 into Aave as collateral, borrowing about $190 million in ETH and other assets across Ethereum and Arbitrum.
That left Aave with impaired collateral, triggering a run on deposits as lenders rushed to withdrew available funds. The total value of assets on Aave plunged $10 billion following the incident.
The total hole is estimated to be more than 112,000 rsETH, according to Aave's incident report.
Q&A
What is the DeFi United initiative launched by Aave?
DeFi United is a coordinated recovery effort led by Aave and several crypto firms to stabilize DeFi markets following the $292 million KelpDAO hack.
How much money is Lido Finance contributing to the recovery effort?
Lido Finance is contributing up to 2,500 stETH, valued at approximately $5.7 million, to support the recovery of rsETH backing.
What impact did the KelpDAO hack have on the DeFi sector?
The KelpDAO hack created a significant shortfall in collateral backing for DeFi markets, prompting Aave and partners to take action to prevent forced liquidations.
