A $300 million hole usually doesn’t come with a neat repair manual. This time, the group leading the recovery of Kelp DAO is trying to write one.
DeFi United, a coalition of multiple blockchain projects and crypto ecosystem individuals, has laid out a detailed roadmap to restore rsETH’s support after this month’s Kelp DAO hack sent shockwaves through the DeFi lending markets, releasing more than 116,000 tokens that were not properly accounted for.
The proposal, circulating on Aave’s official
The incident dates back to April 18, when an attacker exploited a vulnerability in rsETH’s bridge. By spoofing a message that appeared legitimate, the attacker tricked the Ethereum side of the system into releasing 116,500 rsETH, causing the system to think the funds had been moved when they had not, allowing a large batch of rsETH to be created without backing.
Those tokens haven’t just stood still. They were spread across multiple wallets and deployed within DeFi, with a significant portion used as collateral on Aave and other lending platforms.
That’s where the problem became systemic: protocols like Aave suddenly found themselves holding collateral that was, at least temporarily, not fully supported.
Under the proposal, most of the operated funds are still active. About 107,000 of the original 116,500 rsETH remain stuck in active positions at Aave and Compound.
That leaves two issues to solve at once: restoring actual backing to rsETH itself, and settling the loans created using those additional tokens.
DeFi United’s proposal aims to address both sides of that equation simultaneously.
As for the background, the group says they’ve been in line enough $ETH commitments to fully re-collateralize rsETH. The plan is to feed that $ETH step by step back into the system, convert it to rSETH and put it back into the system so that the token is fully supported again.
At the same time, attention is shifting to the credit markets where the damage is most visible.
Instead of letting things get chaotic, the idea is to step in and handle the mess gently.
A big part of that involves dealing with the positions the attacker has opened up on Aave. These are essentially loans backed by rsETH that should not have existed in the first place. Rather than waiting for these loans to collapse on their own – which could lead to even more market disruption – the proposal proposes giving the system a boost so they can be taken out in a more controlled manner.
In practice, temporarily adjusting the way rsETH is valued within the system will allow those bad positions to be liquidated or closed more smoothly. As these positions are unwound, the underlying assets (such as $ETH) can be recovered. The proposal estimates this could free up about 13,000 $ETH only from Aave.
As soon as that collateral becomes available again, it will be converted into $ETH and was used to cover the shortfall created by the exploit, essentially filling the gap left behind.
The process is not without risk. It depends on board approval across multiple chains, successful deployment of committed funds and smooth execution of resolution.
Still, the plan reflects a more coordinated response than DeFi has often seen before. If implemented as intended, the end goal is simple: “rsETH support is fully restored and all affected markets are stabilized,” as the proposal says.
Read more: Industry leaders pour hundreds of millions into bailout for Aave users after massive crypto hack