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

Aaf and a coalition of DeFi protocols are mobilizing a coordinated recovery effort, dubbed “DeFi United,” to deal with bad debt arising from the April 18 exploit that drained $292 million from KelpDAO’s cross-chain bridge, leaving the industry’s largest credit protocol struggling with an estimated deficit of $123.7 million to $230.1 million.

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

“Aave is my life’s work and we work non-stop to find the best possible outcome for users,” he says tweeted. “I am personally contributing 5,000 ETH to DeFi United as we continue to work with partners to formalize more commitments.”

Ethereum layer-2 scale solution Mantle’s core team has prepared a proposal, MIP-34for 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 a maximum of 36 months.

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

“When we were hacked, the industry came together and helped us. It is the only right thing for us to do the same,” said Zhou tweeted.

Liquid staking protocol that Lido Finance’s contributors have suggested a one-time contribution of up to 2,500 stETH, provided the emergency vehicle is fully funded, noting that a partial recovery would expose EarnETH vault savers to losses of up to 9,000 ETH.

Golem Foundation and Golem Factory announced a combined contribution of 1,000 ETH, and Ether.fi has suggested one board votes to stake 5,000 ETH from his DAO treasury.

Tydro Non-Custodial Loan Protocol tweeted it “contributes to DeFi’s coordinated relief efforts,” Ethena confirmed participation without disclosing an amount, Frax Finance spotted an upcoming board vote to support the Aave markets and LayerZero published A proposal for a recovery framework with early voting incentives.

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

The KelpDAO exploit

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

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

The coordinated response has led to cautious optimism and structural skepticism among experts.

Matthew Pinnock, COO at Altura DeFi, shared Declutter the effort indicates that the ecosystem is “moving beyond isolated protocols to a more coordinated financial system,” but did not call it a template.

“Socialized recovery methods are important in times of crisis, but the focus must always be on clear rules and accountability,” he said.

“At this stage there are still very few concrete details about the initiative – apart from the initial funding and some indications of possible coordination,” Georgii Verbitskii, founder of the returns platform TYMIO, told me. Declutter. “Without clarity on what it actually means, it is difficult to expect a meaningful structural shift in DeFi.”

He said the market will “return to more conservative, base-tier configurations” as investors realize that “chasing a few extra percentage points of return” can carry disproportionate risks, likely reducing demand for packaged products and liquid staking derivatives.

He added that packaged products and liquid strike derivatives could see reduced demand as a direct result.

Others see the response as proof of DeFi’s resilience, with Papaya Finance CEO Sergey Kravtsov describing coordinated efforts to Declutter as “an emerging immune response from a financial system that is effectively decentralized,” noting that competing protocols voluntarily intervened because “letting bad debt flow… would have hurt everyone.”

In terms of potential solutions, Pinnock said the industry will likely move toward “standardized collateral onboarding frameworks that require independent attestation of support,” adding that verification standards “need to be enforced from onboarding to be effective – rather than discovering later that they are missing.”