Aave-backed DeFi United raises $320M – Can it restore rsETH backing?

On the 18th of April, an attacker exploited Kelp DAO’s LayerZero bridge, stealing over $292 million. By minting 116,500 unbacked rsETH and borrowing ETH on Aave [AAVE], the attacker left AAVE with more than $230 million in bad debt.

Therefore, the Aave protocol established DeFi United, bringing all major market players to help the protocol recover and stabilize the broader market. 

DeFi United raises $320M in Aave’s recovery plan

AAVE organized DeFi United, a relief effort to restore market functionality following the Kelp DAO incident. The initiative brought together multiple ecosystem participants and individual contributors to strengthen support for rsETH.

DeFi United rallied donations and loans from multiple DeFi projects, including Mantle, Aave DAO, Lido, and Etherfi, as well as individual donors. By doing so, the team exceeded the $230 million shortfall by 39%, raising the total to $320 million.

What restoring rsETH looks like

With DeFi United covering the $230 million shortfall, AAVE is now focused on fully restoring backing for rsETH.

Aave explained that restoring backing means aligning assets with the Kelp rsETH Exchange Ratio, currently around 1.07 ETH. The plan involves converting committed ETH into rsETH in tranches, with the resulting rsETH transferred to affected lockbox contracts. This process allows the bridge to securely resume full operations.

In fact, both Kelp and LayerZero implemented additional security measures to avoid such incidents in the future. Moreover, the recovery plan will clear impacted positions across Aave Ethereum Core and Arbitrum markets. Clearing these positions will free up 13,000 ETH, thus helping to resolve impairment in the affected markets. 

The technical execution involves adjusting oracles and liquidating exploiter positions without causing user losses. The recovered rsETH will be moved to the DeFi United-managed multisig. Once the rsETH collateral is secured, the rsETH price will be restored, and the recovered asset will be redeemed for ETH. The redemption will follow the Kelp’s standard procedure. 

It’s important to note that all these measures are subject to governance approvals, execution timelines, and execution of definitive agreements. 

Is the initiative incentivizing market participants?

Although DeFi United secured the commitment needed to restore full operations, market players have remained skeptical.

In fact, the Total Amount Supplied on AAVE continued to decline, reaching a low of $27.8 billion, marking an $18 billion drop. This suggests that market participants have continued to withdraw capital, while others have refrained from making additional deposits.

However, the supply of stablecoins on Aave signaled a market recovery. Notably, outflows stopped, and deposits have started flowing again.

After dropping to $7.07 billion, stablecoin balances rebounded to $7.3 billion, a gain of over $300 million. These inflows suggest market participants are cautiously re‑entering, pointing to the first signs of renewed confidence.

Final Summary

• DeFi United’s effort raised $320 million from ecosystem participants to help Aave’s recovery.
• Aave’s recovery plan will convert committed ETH into rsETH in tranches, with rsETH transferred to the affected lockbox contract.