Author: Climber, CryptoPulse Labs
On April 24th, Aave, in conjunction with several institutions, launched a rescue plan called "DeFi United," primarily to address the approximately $292 million loss caused by the KelpDAO vulnerability attack and prevent further spread of bad debts.
This attack stemmed from a vulnerability in the integration of KelpDAO and LayerZero. Hackers forged uncollateralized rsETH and used it as collateral to borrow approximately $190 million worth of assets on Aave. This led to distorted collateral and triggered a run on the platform, causing its TVL to evaporate by approximately $10 billion at one point.
Currently, Lido Finance, EtherFi, and founder Stani Kulechov have proposed a funding plan. Aave has received potential support of 43,500 ETH to help stabilize the DeFi lending system, but a shortfall of approximately 68,900 ETH remains.
What began as a technical security incident is rapidly evolving into an industry-wide test of trust. Without a central bank, without enforcement mechanisms, and without a lender of last resort, can this system truly repair itself?
I. The vulnerability isn't the main issue; the real problem is: there simply isn't enough money.
The cause of the problem is actually quite clear.
The security incident surrounding rsETH caused a significant imbalance in Aave's asset structure. Hackers used the lending mechanism to steal 99,600 ETH, essentially removing a core portion of liquidity from the system.
The danger of this type of operation lies in the fact that it's not traditional asset theft, but rather borrowing money by exploiting the rules. From the protocol's perspective, this asset was indeed legally lent out, but from the perspective of the overall system, it was no longer available.
Fortunately, a crucial "bleeding stop" occurred on-chain.
Approximately 30,700 ETH were successfully frozen on Arbitrum. This prevented further losses to some extent and bought time for subsequent processing. Even so, a significant gap remains on the balance sheet: approximately 68,900 ETH.
The significance of this figure lies in its certainty; it's neither an expected loss nor a paper loss, but a definite financial shortfall. In other words, without external intervention, this gap won't disappear on its own.
More importantly, this gap can quickly escalate into a trust issue. Users won't analyze complex technical details or dissect the lending model. They'll only ask the simplest question: Is my deposited money still safe?
Once this question starts being repeatedly raised, the risk begins to spread.
The operation of lending protocols essentially relies on the confidence that funds can be withdrawn at any time. As long as users believe they can withdraw their funds, the system can operate stably.
But once confidence wavers, it follows a familiar path: first, a small amount of funds withdraw, then an accelerated outflow, eventually evolving into structural pressure.
And now, the market's reaction is already showing.
Aave's total deposits have declined significantly since the event, with liquidity tightening marginally. This change isn't an instantaneous collapse, but a typical slow death. Every withdrawal amplifies the system's instability.
This is why the core issue in this incident isn't how much money was stolen, but rather a more fundamental question: when DeFi protocols experience real funding gaps, is the system capable of self-repair?
II. "DeFi United": A Rescue Experiment Without a Central Bank
Faced with the gap, Aave didn't choose to wait for the market to fix it itself.
Instead, it proactively launched a symbolic action, establishing a joint rescue mechanism called "DeFi United."
This step essentially involves something common in traditional finance but rarely happens on-chain: introducing external liquidity support.
In traditional systems, this role is typically played by the central bank.
When financial institutions experience liquidity problems, there are clear bailout mechanisms in place. But in the DeFi world, there is no such role.
Therefore, this attempt became an alternative: leading protocols within the industry jointly assume the responsibility of lender of last resort.
Thus, an unusual scenario emerged. Protocols that were initially competing in different sectors have begun to collectively express their support:
Lido Finance is providing 2500 stETH (in proposal stage)
EtherFi Foundation is providing 5000 ETH (in proposal stage)
Stani Kulechov is personally contributing 5000 ETH
Golem Foundation is providing 1000 ETH
Mantle plans to provide 30000 ETH (currently the largest single contribution)
In addition, projects such as Ethena, LayerZero, Ink Foundation, and Tydra have also publicly expressed their support.
In terms of scale, this is a significant "infusion of funds." The current potential support is approximately 43,500 ETH. If all of it is implemented, it could cover most of the shortfall.
However, the problem is equally clear: it still cannot completely fill the 68,900 ETH gap.
More importantly, the status of these funds is not entirely consistent.
Some are clearly committed contributions, while others are still in the governance proposal stage, requiring community approval. Some simply expressed support without providing specific amounts.
This gives the entire rescue mechanism a semi-certainty. It's directional, but its implementation remains uncertain.
Even so, the mechanism itself is significant. It's the first time it has clearly demonstrated the possibility that DeFi can address systemic risks through horizontal project collaboration.
Why are these protocols willing to step in? The reason isn't complicated.
Aave isn't an isolated protocol; it's one of the core nodes in the entire DeFi liquidity network. If it encounters problems, the impact will spread outwards. For example, the value of staked assets will be under pressure, the re-staking structure will be impacted, and the stablecoin collateral system may experience fluctuations.
In other words, this is no longer just a problem for one project; it's a source of risk that could affect the entire ecosystem.
Therefore, the essence of this joint rescue isn't helping Aave overcome its difficulties, but preventing cracks in the entire DeFi credit system.
III. The Real Test: Can DeFi Survive the "Trust Crisis"?
As events unfold, the issue shifts from the funding level to the structural level. This crisis is becoming a crucial test for DeFi.
Let's return to the most critical question: can this funding gap be completely filled?
If so, Aave's balance sheet will be rebalanced. Market confidence will gradually recover, and capital flows will stabilize.
But if not, even a partial shortfall will leave hidden dangers.
The market won't be complacent just because most of it has been filled; it will only focus on one outcome: whether the risk has been completely eliminated.
Secondly, there's the test of the mechanism itself. Can "DeFi United" become a long-term solution?
At least for now, it still has several structural problems.
For example, a lack of enforcement. All participants' contributions are voluntary. If market conditions change, there's uncertainty about whether promises will be fulfilled.
Another problem is the lack of standardized rules. There are no clear contribution ratios, triggering conditions, or reward mechanisms. Each bailout requires re-coordination, meaning efficiency and stability are limited.
Finally, there's the issue of scale limits; this time, the gap is approximately 68,900 ETH. However, whether this mechanism can still cover greater risks in the future remains uncertain.
These issues also determine one thing: this mechanism is currently more of a temporary solution than a mature industry rescue system.
Even so, it is still significant because it provides a direction on whether DeFi can spontaneously form a risk-sharing mechanism without centralized backing.
Therefore, this event can be seen as an on-chain stress test. It won't directly determine the success or failure of the industry, but it will influence market perception.
If this rescue is successful, it may bring several changes. For example, DeFi may form a cross-protocol collaborative risk response mechanism for the first time, the credibility of leading protocols may be repaired or even strengthened, and the market's trust boundaries in on-chain finance may be expanded again.
But if it fails, the consequences are equally clear: decreased user trust in lending protocols, further withdrawal of funds from high-risk structures, and an increase in the risk premium of the entire DeFi system, etc.
A deeper impact is that users may begin to rethink a question: Is DeFi truly a system capable of supporting large-scale assets in the long term?
Conclusion
On the surface, this is a shortfall of 68,900 ETH. But at a deeper level, it's a major test of how trust can be rebuilt.
In an environment without central banks or regulatory backing, leading DeFi projects are answering a core question in the most rudimentary way: when risks actually occur, can this system save itself?
The answer is not yet fully revealed, but what is certain is that, regardless of its success or failure, this attempt will inevitably require a longer period of time and greater effort to repair and rebuild.
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