Aave, the largest DeFi lending protocol, is grappling with a $200 million bad debt crisis after a hacker exploited a KelpDAO cross-chain bridge bug to mint fake tokens and drain nearly 96,000 ETH from the protocol. Founder Stani Kulechov launched an industry-wide rescue fund called DeFi United, pledging 5,000 ETH himself and rallying support from Lido, EtherFi, Golem Foundation, and Bybit's Mantle. However, total commitments stand at only 43,500 ETH, leaving a 25,000 ETH shortfall — and most pledges still need DAO approval.
Massive Drain and Run on Aave
The exploit occurred on April 24, when the hacker used LayerZero-based messaging to create unbacked tokens, borrow nearly all available ETH, and flee. While Arbitrum's security council froze 30,700 ETH, the remaining 68,900 ETH hole equals about $160 million. Panic ensued: within six days, Aave lost over $15 billion in total deposits. USDT and USDC pools hit near 100% utilization, leaving many depositors unable to withdraw.
DeFi United: A TARP Without Teeth
DeFi United is structurally reminiscent of the 2008 TARP program, but without any government backing. The rescue relies entirely on voluntary contributions. So far, only Stani's 5,000 ETH and Golem's 1,000 ETH are confirmed. Lido's 2,500 stETH and EtherFi's 5,000 ETH are pending DAO votes; Mantle's 30,000 ETH offer is still a governance proposal. Lido's proposal also includes a clause requiring the full amount to be secured before disbursing funds.
The Contagion Risk of rsETH
Aave holds roughly 83% of circulating rsETH, the token used as collateral across multiple DeFi protocols. If rsETH depegs, the damage will spread far beyond Aave. Lido's proposal warns that just one vault (EarnETH) may face up to 9,000 ETH in liquidation losses. That's why competitors are stepping in — saving Aave is self-preservation.
Who Bears the Loss?
If the final gap isn't filled, Aave plans to socialize the bad debt among depositors — those who lent WETH for a few percent APY. Circle's chief economist Gordon Liao proposed raising the borrowing rate cap from 10% to 50%, essentially using higher interest to lure fresh capital. Yet as of press time, Aave's USDC pool has less than $3 million in available liquidity. The outcome remains uncertain, but ordinary depositors are once again on the hook for risks they never controlled.