Aave raises $160M to cover Kelp DAO exploit bad debt

Aave, a major lending platform in decentralized finance (DeFi), has raised roughly $160 million to cover $200 million in bad debt left by the Kelp DAO exploit. Arkham, a blockchain analytics firm, posted on X on Saturday that contributors sent funds to the address defiunited.eth. The largest backers were Mantle and the Aave DAO itself, which together put up 55,000 ETH, worth about $127 million at current prices.

Background of the exploit

Last week, Aave and several major crypto firms announced a coordinated recovery effort to stabilize the DeFi markets. The move came after a $292 million security breach hit the crypto borrowing sector’s largest lender. The breach was linked to a KelpDAO integration vulnerability with LayerZero. An attacker managed to mint 116,500 unbacked rsETH tokens, which left Aave with impaired collateral. This triggered a massive run on deposits as lenders rushed to exit, eventually leading to $10 billion being withdrawn from the platform.

The recovery plan: DeFi United

The recovery initiative is called DeFi United and is led by Aave service providers. Its main goal is to restore support for rsETH, the yield-bearing derivative token of ether at the center of the exploit. The effort focuses on stabilizing the system through a coordinated bailout that recaps allizes rsETH and mitigates losses for users.

Aave founder Stani Kulecho personally contributed 5,000 ETH, worth roughly $11.73 million at current ether prices of around $2,346. “I’m personally contributing 5,000 $ETH to DeFi United as we continue working together with partners,” he said. Other major contributors remain unnamed, though the bulk of the funds came from Mantle and the Aave DAO.

Market context and similar incidents

This is not the largest exploit in the DeFi space this year. In late March, the Drift Protocol on Solana lost at least $270 million when an attacker abused a legitimate feature called “durable nonces.” That incident did not involve a code bug or stolen keys, but rather a clever misuse of a standard transaction feature.

While Aave’s recovery effort is still underway, the platform has made significant progress. The full $200 million target might be achievable soon, though some market participants remain cautious. The coordinated approach by major players in the space shows how interconnected the DeFi ecosystem has become. For now, Aave and its partners are working to prevent further damage and restore confidence in the market.

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