The Kelp DAO hack last month sent shockwaves through the decentralized finance (DeFi) ecosystem, forcing a crisis response led by DeFi United, a consortium of blockchain projects and industry stakeholders. Since the attack, the scope of the damage has been tracked transparently, culminating in the publication of a detailed recovery plan this week.
How the crisis unfolded
On April 18, attackers exploited a vulnerability in the rsETH bridge, deceiving the Ethereum side of the system and enabling the unauthorized release of 116,500 rsETH. These synthetic assets, which did not exist before the breach, were then routed to various wallets and deployed in multiple DeFi applications. A significant share was used as collateral in major lending platforms, such as Aave and Compound.
The consequences rippled beyond token reserves to the protocols themselves. For a brief period, platforms like Aave were flooded with rsETH that lacked any real backing. Currently, around 107,000 of the hacked rsETH remain locked in active positions within the Aave and Compound ecosystems.
DeFi United unveils a multi-step solution
To address the massive $300 million shortfall, DeFi United’s plan centers on two core objectives: restoring full backing for rsETH and resolving the suspicious loan positions created in the wake of the attack.
The first phase involves community members pledging to provide the necessary amount of ETH as collateral for the system. This ETH will be gradually converted back into rsETH, replenishing reserves step by step to close the deficit entirely.
Perhaps the most visible shakeup in lending markets is tied to the attacker’s open positions. The coordinated plan aims to close these loans in a controlled manner, rather than simply leaving them to market forces, thereby minimizing collateral losses as much as possible.
A key detail of the plan is emphasized as follows: “rsETH collateral will be fully restored, ensuring complete stability across all related markets.”
Tactical maneuvers and an orderly exit
The recovery strategy also includes temporary adjustments to the valuation of rsETH within the system, allowing the toxic loan positions to be unwound with reduced market volatility. This approach seeks to gradually liquidate dubious positions, making it possible to recover an estimated 13,000 ETH from Aave alone.
Recovered ETH will be reintegrated into reserves to help plug the token shortfall. The process, however, is not without risk, as it relies on community votes and cooperation across several blockchain ecosystems to ensure continuity and coordination.
This plan marks an unprecedented example of cross-project collaboration in DeFi’s history. If the process is completed as intended, the decentralized finance marketplace could see a return to broader stability.
