Key Takeaways

• An industry coalition, DeFi United, led by Aave has raised $300M in ETH to restore the backing of Kelp DAO’s rsETH after a Lazarus Group hack.

• The plan involves converting ETH into rsETH in specific tranches to minimize risk and stabilize the bridge.

• A strategic liquidation sequence will be used to resolve eight high-risk positions on Aave and Compound, freeing up trapped liquidity.

The DeFi sector is fighting back against the $292 million exploit that rocked Kelp DAO earlier this month. A coalition of major protocols, dubbed “DeFi United,” has released a technical blueprint to make the ecosystem whole.

The hack, which utilized forged messages on the rsETH bridge to mint unbacked tokens, had left a trail of “bad debt” across lending giants like Aave and Compound. By pooling over $300 million in ETH, the coalition aims to restore the 1:1 backing of rsETH without “socializing” the losses among everyday users.

Industry Coalition Moves to Repair $292 Million Kelp DAO Breach

The restoration is a multi-step process. DeFi United will convert its committed ETH into rsETH in controlled tranches, which are then moved to a secure lockbox contract. This gradual approach is a safeguard against the “Lazarus Group” attacker, who might attempt to interfere with the deficit accrual process.

By filling the lockbox in stages, the coalition can ensure the bridge resumes full operation securely. This is a landmark moment for DeFi, proving that the industry can self-organize to provide a “lender of last resort” function when a systemic risk threatens the stability of the entire “money lego” stack.

Strategic Liquidation Sequence to Resolve Aave and Compound Debt

A critical part of the plan involves the surgical removal of the attacker’s positions on Aave and Compound. This requires a temporary adjustment of the rsETH oracle price to allow for an efficient, controlled liquidation. Once these positions are cleared, roughly 13,000 ETH on Aave and 16,776 ETH on Compound will be recovered.

The coalition emphasized that while new security measures for LayerZero and Kelp are now in production, they have not yet been battle-tested. Consequently, the recovery will proceed with extreme caution, with progress being communicated to the public at each major milestone.

Final Thoughts

DeFi United’s plan is more than just a bailout; it is a demonstration of the ecosystem’s maturity. If successful, it will prove that decentralized governance can handle state-sponsored cyber-attacks without relying on centralized banking interventions.

Frequently Asked Questions

What is rsETH?
It is a “liquid restaking token” that represents ETH staked in the Kelp DAO protocol.

Who is paying for the recovery?
A coalition of DeFi protocols, led by Aave, has contributed over $300 million in ETH to the fund.

When will the bridge be fully operational?
The bridge will resume full operation once the tranches of ETH are successfully converted and the bad debt is cleared.