The Kelp DAO hack incident that occurred in the DeFi world last month seriously shook the decentralized finance ecosystem. The recovery process initiated after the attack is led by DeFi United, which consists of many blockchain projects and industry representatives. The resulting damage was monitored transparently from the beginning of the process, and a detailed solution plan was shared with the public this week.
How did the crisis arise?
In the incident that took place on April 18, the attacker used a vulnerability in the rsETH bridge to deceive the Ethereum side of the system and release a total of 116,500 rsETH. In this process, assets that did not actually exist were created and these assets were distributed to different wallets and used in various DeFi applications. A significant part of it was evaluated as collateral on leading loan platforms such as Aave and Compound.
This situation created problems not only in token reserves but also in the functioning of the protocols. Large protocols such as Aave were faced with rsETH, which entered the system as collateral for a short time and had no real assets behind it. Particularly in the Aave and Compound systems, approximately 107,000 of the 116,500 rsETH are still held in active positions.
Multi-step solution from DeFi United
The plan proposed by DeFi United to close the $300 million gap created after the attack focuses on two main goals: backing rsETH with full provision and safely closing loan positions opened with suspicious collateral.
In the first step, community members agree to pledge the required amount of ETH in the system. These ETHs within the scope of the plan will be gradually converted into rsETH and deposited back into the system, and the current deficit of rsETH will be completely closed.
The most visible tremors in the debt markets are the positions opened by the attacker. The plan aims to terminate these loans in a more controlled manner, without leaving them at the mercy of the market, and to minimize the damage on collateral.
The prominent statement in the details of the plan is as follows: “rsETH provisions will be fully restored and full stability will be achieved in all relevant markets.”
Exiting the system with technical moves
The recovery plan envisages making temporary changes to the valuation of rsETH within the system, thus closing out bad credit positions with less volatility. With this method, positions of uncertain origin will be liquidated slowly. As a result, it will be possible to recover approximately 13,000 ETH from Aave.
The obtained ETHs will be included in the reserve again to fill the token gap. Thus, it is aimed to close the financial gap on the chain. However, it is emphasized that this process is not completely risk-free. The need for community voting and collective action across multiple blockchain ecosystems is seen as important for the continuity of the plan.
The plan offers an example of collaboration that decentralized finance has not been accustomed to seeing in the past. If the process is completed according to its purpose, it is aimed to stabilize the decentralized financial markets.
