Mantle Proposes 30,000 ETH Loan to Aave DAO to Resolve rsETH Bridge Exploit Bad Debt

TLDR:

• • Mantle proposed lending up to 30,000 ETH to Aave DAO to cover bad debt from the April 18 rsETH exploit.
  • The April 18 attack exploited a 1-of-1 DVN flaw, enabling $190M in real assets to be drained from Aave V3.
  • Bad debt estimates range from $123.7M to $230.1M, with Mantle and Arbitrum facing the heaviest L2 exposure.
  • A growing DeFi coalition including Frax, Lido, Ethena, and EtherFi has mobilized to support Aave’s recovery effort.

Mantle, a modular layer 2 blockchain connected to Bybit, has proposed lending up to 30,000 ETH to Aave DAO. The loan targets bad debt from an April 18, 2026 exploit on Kelp DAO’s rsETH bridge.

Attackers minted unbacked tokens, deposited them as collateral on Aave V3, and drained around $190 million. The community proposal remains in draft form and is open for discussion ahead of a formal vote.

How the rsETH Exploit Created Bad Debt on Aave V3

On April 18, 2026, a vulnerability in Kelp DAO’s LayerZero bridge setup allowed unauthorized token minting. The flaw stemmed from a 1-of-1 DVN configuration, which permitted a single verifier to approve messages. This enabled the creation of 116,500 unbacked rsETH tokens worth approximately $292 million.

The attacker then deposited 89,567 of those tokens into Aave V3 as collateral. WETH, wstETH, and stablecoins worth about $190 million were borrowed against them.

Aave’s protocol operated correctly throughout, but the event exposed the system to major bad debt. Mantle then moved to address the shortfall through a formal treasury proposal.

Mantle wrote on X: “Following this week’s rsETH incident involving @KelpDAO and @LayerZero_Core, a proposal has been put forward for Mantle to contribute a loan facility to @aave’s coordinated relief effort.”

The post added that the loan would form part of a “wider coordinated framework, structured to minimize disruption across the broader ecosystem.” Mantle further described its goal as contributing to a measured path forward for affected users.

A LlamaRisk report placed bad debt estimates between $123.7 million and $230.1 million. If losses spread across all rsETH holders, the figure stands near $124 million.

A layer 2 isolation scenario could push losses past $230 million, hitting Mantle and Arbitrum the hardest. Mantle’s proposed loan would go entirely toward covering the Aave V3 shortfall, with an interest rate set at Lido yield plus 1% annually and a maturity of up to 36 months.

DeFi Projects Rally Around Aave’s Coordinated Recovery Effort

Mantle’s proposal sits within a broader coalition that formed after the exploit was disclosed. Multiple DeFi projects have committed resources to Aave DAO’s recovery framework.

The exploit is considered the largest DeFi hack of 2026 to date. The Ink Foundation confirmed participation, while LayerZero said its contribution would go toward “the best path forward for restoring rsETH backing.”

Golem Foundation and Golem Factory contributed a combined 1,000 ETH toward the relief effort. Aave CEO Stani Kulechov personally pledged 5,000 ETH to DeFi United.

Frax, an Aave V4 partner, stated it is in direct talks with Aave despite having no direct exposure. Ethena, EtherFi Foundation, and Lido are also named as participants in the recovery effort.

Frax stated it would work “in positive sum with DeFi United to bring stability to Aave markets and the greater DeFi ecosystem.”

The Mantle Core Contributor Team described the loan as converting idle treasury capital into a yield-generating position. Early repayment is permitted without penalty at the borrower’s discretion.

To protect Mantle’s treasury, the proposal includes collateral held in a designated multisig wallet. Aave would also allocate 5% of protocol revenue and AAVE tokens worth no less than $11 million.

Mantle would receive 130,000 delegated AAVE tokens to participate in Aave governance decisions.

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