Aave Proposes 25,000 ETH for Kelp DAO Exploit Recovery

The Aave decentralized autonomous organization (DAO) has proposed allocating 25,000 ETH, valued at approximately $58 million, from its treasury to support a recovery effort following a major exploit at Kelp DAO on April 18. The initiative, coordinated through the DeFi United relief fund, aims to restore full backing for the affected rsETH tokens and mitigate bad debt across interconnected lending platforms, including Aave.

The exploit targeted a vulnerability in Kelp DAO's Ethereum LayerZero bridge adapter, enabling an attacker to mint 152,577 unbacked rsETH tokens, equivalent to about 163,183 ETH at current rates. The hacker then deposited these tokens as collateral on Aave and other platforms to borrow legitimate assets, creating an initial liquidity shortfall and solvency risks that rippled through DeFi ecosystems. Kelp DAO and the Arbitrum Security Council responded swiftly by freezing 40,373 rsETH, worth roughly 43,168 ETH, and 30,766 ETH held on Arbitrum, respectively. Additional recoveries are anticipated from liquidation processes on Aave, potentially yielding up to 12,323 ETH, and on Compound, adding about 1,845 ETH. These measures have reduced the net deficit to...