TLDR
- Kelp DAO suffered a $293 million security breach that resulted in over $190 million in uncollateralized debt on Aave
- DeFi United, a recovery initiative spearheaded by Aave, aims to restore rsETH backing and reimburse impacted token holders
- The fundraising campaign has secured approximately $160 million toward its $200 million objective
- Aave has requested Arbitrum to allocate 30,765 ETH (worth $73.5M) currently frozen from the attack toward the recovery fund
- Mantle and Aave DAO lead contributions with a combined $127 million commitment
Aave, recognized as the premier decentralized finance lending protocol, has spearheaded a collaborative restoration initiative following a devastating $293 million security breach that exploited weaknesses in Kelp DAO’s LayerZero integration.
The malicious actor exploited the vulnerability to create 116,500 rsETH tokens without proper backing. These fraudulently minted tokens were subsequently deposited as collateral on Aave’s platform to extract wrapped Ether, resulting in an outstanding debt exceeding $190 million.
The incident sparked significant panic among users. Aave experienced a dramatic decline in total value locked, plummeting nearly $12 billion within seven days as depositors scrambled to withdraw their assets.
To address the crisis, Aave Labs established a restoration fund named “DeFi United” last Friday. The initiative’s primary objective is to completely restore rsETH’s underlying collateral and provide compensation to affected token holders.
According to data from blockchain intelligence firm Arkham, Aave has successfully accumulated approximately $160 million of the estimated $200 million requirement. This achievement represents roughly 80% completion of the fundraising goal.
Mantle and Aave DAO have emerged as the primary financial supporters. Their combined pledge totals 55,000 ETH, valued at approximately $127 million based on current market rates.
Stani Kulechov, Aave’s founder, has made a substantial personal contribution of 5,000 ETH, translating to roughly $11.7 million at Ether’s present trading price near $2,346.
The recovery wallet has received direct deposits totaling about $21 million thus far. Other contributing entities include BGD Labs, Kelp DAO, Golem Foundation, and Babylon.
An additional $215 million in commitments from Arbitrum, Mantle, Ether.fi, and Lido awaits approval through their respective governance mechanisms before distribution can occur.
Arbitrum Funds Could Boost Recovery
The Arbitrum Security Council implemented emergency measures last week, freezing 30,765 ETH contained in a wallet associated with the security breach. These holdings currently possess a market value approaching $73.5 million.
Aave Labs has formally submitted a governance proposal requesting that Arbitrum’s decentralized autonomous organization transfer these frozen assets to the DeFi United recovery wallet.
The governance proposal appeared on Saturday within the Arbitrum forum. The submission received endorsements from Kelp DAO, LayerZero, Ether.fi, and Compound.
According to Aave Labs, the frozen Ether holdings “represents a material contribution” toward rebuilding rsETH’s proper backing. The organization emphasized that even partial fund recovery would meaningfully decrease the overall deficit.
Recovery Timeline and Structure
Aave Labs has established a 49-day window for executing the recovery plan. The collected funds will remain in an address under multi-signature control shared between Aave, Kelp DAO, and blockchain security firm Certora.
Aave Labs has committed to returning all contributed funds should the recovery initiative fail to progress as planned.
LayerZero, Ethena, Ink Foundation, and Frax Finance have each expressed willingness to participate, although concrete funding commitments from these organizations remain pending verification.
Arkham validated on Saturday that Mantle and Aave DAO’s joint contributions total $127 million, positioning them as the recovery fund’s most significant financial supporters.
