Aave Outlines Steps to Rebuild rsETH Collateral

Aave has announced a recovery plan following an April 18 exploit that affected its liquidity markets and collateral positions on several chains. The update explains how DeFi United, a group of ecosystem participants, intends to restore the backing of rsETH and bring affected markets back to normal. Recovery Process The issue started when an attacker exploited a vulnerability in rsETH’s bridge from Unichain to Ethereum, causing a fake transaction to be processed on Ethereum. Therefore, 116,500 rsETH was released to multiple addresses, some of which were used as collateral on Aave 3 and some bridged to Arbitrum. Early damage-control measures included the Arbitrum security council freezing 30,766 ETH linked to the exploit. However, this still left a huge balance and had a major impact on the markets. At the moment, about 107,000 rsETH from the stolen amount remains locked in active positions on Aave and Compound. To fix this, the protocol organized a coordinated industry response under the DeFi United initiative, later sharing a detailed procedure on social media to revive the token’s backing so that it matches its expected value of 1.017 ETH. Aave said that the plan is to convert that ETH into rsETH in stages and deposit it into the bridge lockbox, which will allow the system to safely resume normal operations. At the same time, LayerZero and KelpDAO have added extra security measures to reduce the risk of similar issues happening again. According to an article it posted on X, Aave will work on clearing the affected positions through governance proposals on Ethereum and Arbitrum. The process will also temporarily adjust the price of rsETH to allow for easier liquidations. The protocol will then send the recovered tokens to a multisig wallet held by DeFi United, which will be redeemed for ETH via Kelp’s standard process and used to cover the shortfall on the affected markets. Aave Shares Recovery Projections The firm estimates that these efforts will help it recover...