Aave-led ‘DeFi United’ Launched… Steps to Block Spread of rsETH Crisis

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Major DeFi protocols have stepped in for a joint rescue after rsETH collateral was shaken following a $293 million (approximately 434.9 billion KRW) exploit on the Kelp restaking platform. As concerns grow that the liquidity shock could spread to the entire lending market, an ecosystem-wide recovery package led by AAVE is rapidly taking shape.

Abe referred to this solidarity movement as the 'DeFi United' relief effort and announced that more than 43,500 Ethereum (ETH) has been pledged as recovery funds to date. This amounts to approximately $101 million, or about 149.8 billion KRW (based on an exchange rate of 1 dollar = 1,483.60 KRW), with participants including Lido DAO and the Golem Foundation.

43,500 ETH pledged… Mantle, EtherFi, LidoDAO, and others participate

In a statement on Thursday (local time), Abe emphasized, “Ecosystem cooperation is paramount at moments like this, and our priority is to secure the strongest possible outcome for users.” He added, “A large number of strong willingness to participate in the restoration of rsETH collateral has already been established.”

The largest pledges to date have come from Mantle and EtherFi. Mantle submitted a proposal to lend up to 30,000 ETH to the Aave DAO on the condition of receiving 'return (interest),' and the EtherFi Foundation announced that it would contribute 5,000 ETH. The Golem Foundation and Golem Factory jointly offered 1,000 ETH, and Lido DAO also stated that it would provide a one-time support of up to 2,500 stETH (Lido staking Ethereum) on the condition that other participants cover the deficit by contributing the entire recovery funds.

Bridge hacking spreads to Aave v3, '195M' bad debt

The incident began on April 18 when an attacker stole 116,500 'Kelp DAO Restaked ETH' tokens through Kelp DAO's LayerZero-based bridge. The attacker used these as collateral on Aave v3 to borrow Wrapped Ethereum (WETH), resulting in an estimated $195 million (approximately 289.3 billion KRW) in 'bad debt' for Aave.

The common view in the industry is that, given the DeFi structure where collateral tokens and lending markets are intertwined like a network, losses in a specific protocol can easily spread to other lending and liquidity pools. Aave founder and CEO Stani Kulechov also revealed that he has personally pledged 5,000 ETH and stated that he is in the process of 'formalizing' additional pledges with partners.

Suspension of rsETH deposits and fund freezes implemented concurrently… Laundered volume is also a variable

Abe announced that it has temporarily suspended rsETH reserves on Ethereum, Arbitrum (ARB), Base, Mantle, and Linea to prevent further damage and increase the likelihood of recovery. Abe explained, “This measure is aimed at recovering additional funds while the recovery plan is underway, and we will continue to update the community on the next steps.”

While some funds have already entered freezing procedures, uncertainty regarding their recovery remains. On Monday, a few days after the exploit, the Arbitrum Security Committee urgently froze 30,766 ETH in wallets linked to the kelp attack, but blockchain analysts believe the attacker has already 'laundered' 75,700 tokens. Key points to watch in the market going forward include how much the 'DeFi United' recovery package will mitigate the cascading shock to the DeFi lending market and how quickly confidence in rsETH collateral will actually recover.

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Article Summary by TokenPost.ai
🔎 Market Analysis - Trust in rsETH collateral has been shaken in the aftermath of the Kelp restaking platform exploit (approx. $293 million), resulting in approximately $195 million in bad debt on Aave v3. - Since DeFi involves collateral, lending, and bridge assets interconnected like a network, there is growing concern that losses at one point could spread to cause a liquidity crunch across the entire lending market. - Aave-led 'DeFi United' is an example of transforming a single-protocol issue into a collective ecosystem defense; the market views 'how effectively cascading liquidations and liquidity shocks can be contained' as a key point to watch . 💡 Strategic Points - Collateral Asset Monitoring: Assets routed through bridges and restaking, like rsETH, carry complex risks involving 'smart contracts + bridges + liquidity,' so changes in collateral haircuts, limits, and liquidation conditions must be monitored frequently. - Blocking Contagion Pathways: Just as Aave suspended rsETH reserve deposits on a chain-by-chain basis, restrictions on asset movement and deposits should be implemented during a crisis. Suspensions and adjustments to risk parameters may occur rapidly - Assessment of the quality of the recovery package: Actual trust restoration depends not only on the simple support scale (43,500 ETH) but also on the conditions (loan/interest, one-time, deficit-covering conditions), execution speed, and the method of writing off bad debt - Recoverability variables: Apart from the frozen amount (30,766 ETH on Arbitrum Security), 'laundered volume (approx. 75,700 tokens)' remains, so the party bearing the loss may change depending on the final recovery rate 📘 Terminology - Exploit: An attack that steals assets by exploiting vulnerabilities in smart contracts or bridges - Bad Debt: Non-performing debt where loans are not repaid because collateral value has collapsed or recovery has become impossible - rsETH: A staking derivative token based on restaking (trust and liquidity are key when used as collateral) - Bridge: A protocol that enables the movement of assets between different chains (due to a wide attack surface, damage is significant if a vulnerability occurs) Freeze: A measure to prevent further outflows by stopping the movement of suspicious wallets/assets (does not guarantee recovery)

💡 Frequently Asked Questions (FAQ)

Q. What is the reason for the 'bad debt' incurred by Aave in this case?
A hacker deposited rsETH-related tokens stolen through the Kelp DAO bridge as collateral with Aave v3 and borrowed WETH. Subsequently, if the trust/value of the collateral is shaken, it becomes difficult to recover the full loan amount even through liquidation, resulting in uncollectible bad debt (malicious debt) amounting to approximately $195 million.
Q. How does 'DeFi United' help users?
The purpose is for various entities, including Mantle, EtherFi, Lido DAO, and Golem led by Aave, to raise recovery funds (a total of over 43,500 ETH) to restore confidence in rsETH collateral and mitigate the liquidity shock that could spread to the entire lending market. The extent of user loss mitigation is determined not only by the 'scale' of the recovery funds but also by the actual execution method (lending conditions, one-time support, and deficit covering conditions).
Q. Why does uncertainty remain despite the suspension of rsETH deposits and the freezing of funds?
Suspending deposits is a measure to prevent the spread of further damage, while freezing is a measure to restrict the movement of some funds. However, the final recovery rate is uncertain as there are reports that the attacker has already 'laundered' a significant amount (approximately 75,700 tokens). As the amount of failed recovery increases, the methods for handling bad debt and the effectiveness of recovery packages become more critical.
TP AI Note: This article has been summarized using a language model based on TokenPost.ai. Key content of the text may be omitted or inaccurate.
This article is based on market data and chart analysis and does not constitute investment advice for any specific stock.

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#AAVE #DeFi #rsETH #Ethereum #Hacking #SecurityIncident #LidoDAO​​

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