Aave Rallies DeFi Partners to Restore rsETH Backing After KelpDAO Exploit

Aave launched “DeFi United” with commitments from Lido, EtherFi, Ethena, and others to cover the rsETH shortfall created by the $292 million KelpDAO bridge exploit.

Aave and a coalition of major DeFi protocols launched a coordinated recovery effort on Thursday following the $292 million KelpDAO exploit. They announced an industry initiative called “DeFi United” to cover a shortfall in rsETH collateral and prevent systemic bad debt across the sector’s largest lending platform.

The attack traced back to a vulnerability in KelpDAO’s LayerZero-powered bridge, where an attacker minted 116,500 unbacked rsETH tokens. Rather than dumping them, the attacker deposited nearly 90,000 rsETH into Aave as collateral across Ethereum and Arbitrum, borrowing roughly $190 million in ETH and other assets.

This story is an excerpt from the Unchained Daily newsletter.

The maneuver left Aave holding impaired collateral of about 112,000 rsETH and triggered a run on deposits. The total value locked on Aave fell by $10 billion in the days following the incident.

Aave founder and CEO Stani Kulechov personally committed 5,000 ETH to the relief fund and said the team was “working nonstop” with partners on the recovery. Lido Finance proposed an on-chain Aragon vote to authorize a one-time contribution of up to 2,500 stETH to a dedicated relief vehicle, conditioned on the full funding gap being closed. And Mantle is pitching in 30,000 ETH.

EtherFi, Ethena, LayerZero, Tydro, and the Ink Foundation have also indicated contributions, according to Aave.

Arbitrum‘s Security Council had already frozen 30,766 ETH worth roughly $71 million tied to the exploiter’s address. A large share of the stolen funds has since been routed through THORChain and privacy protocol Umbra, complicating recovery efforts. JPMorgan analysts flagged the incident as a further setback for DeFi’s institutional appeal, noting that persistent security vulnerabilities and stagnant total value locked “continue to limit DeFi’s institutional adoption.”

The DeFi United initiative represents one of the most coordinated industry responses to a hack in recent memory. Its success will depend on whether partners can formalize commitments fast enough to close the gap before further damage is done.