Aave rallies DeFi players on "DeFi United" plan after $292M KelpDAO-linked exploit

Aave and a group of major crypto firms are coordinating a recovery package to shore up decentralized finance markets after a $292 million exploit tied to KelpDAO left the sector's largest lending protocol facing a material gap in collateral coverage. The effort, dubbed "DeFi United" and led by Aave service providers, is aimed at recapitalizing rsETH, a yield-bearing Ethereum (ETH) derivative token that sat at the center of the attack. Aave said in a post on X that multiple participants have indicated support. Lido Finance was the first to detail a contribution. Its ecosystem contributor, the Lido Labs Foundation, proposed allocating up to 2,500 stETH, currently worth about $5.7 million, to a dedicated relief fund. The funds are intended to narrow the rsETH backing shortfall and reduce the risk of forced liquidations across lending markets. EtherFi later floated a 5,000 ETH initiative to "protect DeFi users and prevent bad debt." Aave founder Stani Kulechov separately pledged 5,000 ETH, saying he is working to restore normal market conditions as quickly as possible. Aave said additional commitments will be disclosed once formally confirmed. The exploit triggered a broader shock across DeFi lending. Investigators traced the incident to a vulnerability in KelpDAO's integration with LayerZero, where an attacker abused the bridge's message-passing mechanism to mint 116,500 unbacked rsETH. The attacker did not sell the tokens, instead posting nearly 90,000 rsETH as collateral on Aave and borrowing roughly $190 million in ETH and other assets across Ethereum and Arbitrum. The undercollateralized borrowing sparked a run as lenders rushed to withdraw available liquidity. Aave's total value of assets fell by $10 billion following the incident. Aave estimates the total rsETH exposure tied to the vulnerability at more than 112,000 tokens. Some containment steps preceded the "DeFi United" plan. Earlier this week, Arbitrum's Security Council froze 30,766 ETH linked to the exploit, worth about $71 million at the time. The remaining funds were bridged and swapped into Bitcoin via Thorchain, complicating recovery. The current push is focused less on clawbacks and more on stabilizing the system through coordinated support measures, recapitalizing rsETH, and limiting losses.