Aave Leads ‘DeFi United’ Push to Contain $292M KelpDAO Fallout

Aave and a coalition of DeFi protocols are mobilizing a coordinated recovery effort, branded “DeFi United,” to absorb bad debt stemming from the April 18 exploit that drained $292 million from KelpDAO’s cross-chain bridge, leaving the sector’s largest lending protocol grappling with an estimated $123.7 million to $230.1 million shortfall.

Aave founder Stani Kulechov kicked off the push on Wednesday with a personal pledge of 5,000 ETH.

“Aave is my life’s work and we’re working nonstop to find the best possible outcome for users,” he tweeted. “I’m personally contributing 5,000 ETH to DeFi United as we continue working together with partners on formalizing more commitments.”

Ethereum layer-2 scaling solution Mantle’s core team has drafted a proposal, MIP-34, for a credit facility of up to 30,000 ETH, a loan to Aave DAO structured with interest at Lido’s rate plus 1%, repayable over up to 36 months.

Crypto exchange Bybit co-founder Ben Zhou said the exchange, as Mantle’s biggest stakeholder, will vote yes.

“When we got hacked the industry got together and helped us. It is the only right thing that we do the same,” Zhou tweeted.

Liquid staking protocol Lido Finance’s contributors have proposed a one-time contribution of up to 2,500 stETH, conditioned on the relief vehicle being fully funded, noting that a partial recovery would leave EarnETH vault depositors exposed to losses of up to 9,000 ETH.

Golem Foundation and Golem Factory announced a combined 1,000 ETH contribution, and Ether.fi has proposed a governance vote to deploy 5,000 ETH from its DAO treasury.

Non-custodial lending protocol Tydro tweeted it is “contributing to the coordinated DeFi relief effort,” Ethena confirmed participation without disclosing an amount, Frax Finance signaled an upcoming governance vote to support Aave markets, and LayerZero published a recovery framework proposal with early voting incentives.

On Wednesday, Circle’s chief economist Gordon Liao proposed raising Aave’s USDC borrowing cap to 50% from 14% to break the liquidity freeze, an idea amplified by CEO Jeremy Allaire but criticized by some governance participants who warned it could trigger liquidations.

The KelpDAO exploit

The KelpDAO exploit, attributed to North Korean hackers, saw attackers exploit a configuration vulnerability in Kelp’s LayerZero bridge, a single-verifier setup that allowed unauthorized minting of 116,500 rsETH, before using the unbacked tokens as collateral on Aave to borrow roughly $190 million in legitimate assets.

The resulting liquidity crunch triggered more than $10 billion in net withdrawals from Aave, with the Arbitrum Security Council later freezing 30,766 ETH worth $71.5 million linked to the exploiter following law enforcement input.

The coordinated response has drawn cautious optimism alongside structural skepticism from experts.

Matthew Pinnock, COO at Altura DeFi, told Decrypt the effort signals that the ecosystem is “moving beyond isolated protocols to a more coordinated financial system,” but stopped short of calling it a template.

“Socialised recovery methods are important in a moment of crisis, but the focus should always be on clear rules and accountability,” he said.

“At this stage, there are still very few concrete details about the initiative—beyond initial funding and some indications of potential coordination,” Georgii Verbitskii, founder of yield platform TYMIO, told Decrypt. “Without clarity on what it will actually involve, it’s difficult to expect any meaningful structural shift in DeFi.”

He said the market will “move back toward more conservative, base-layer configurations” as investors realize that “chasing a few extra percentage points of yield” can carry disproportionate risk, likely reducing demand for wrapped products and liquid staking derivatives.

Wrapped products and liquid staking derivatives, he added, may see reduced demand as a direct consequence.

Others view the response as proof of DeFi’s resilience, with Sergey Kravtsov, CEO of Papaya Finance, describing the coordinated effort to Decrypt as “an emergent immune response of a financial system that is actually decentralized,” noting that competing protocols stepped in voluntarily because “letting bad debt cascade… would have hurt everyone.”

On potential fixes, Pinnock said the industry will likely move toward “standardised collateral onboarding frameworks that require independent attestation of backing,” adding that verification standards need to be “enforced from onboarding to be effective — rather than discovered missing later down the line.”