DeFi United forms to cover $292M KelpDAO loss

Aave and a coalition of decentralized finance protocols launched ‘DeFi United’ on April 23 to absorb bad debt from the April 18 KelpDAO exploit that drained $292 million. Aave founder Stani Kulechov pledged 5,000 ETH to the recovery effort.

The exploit targeted a configuration flaw in KelpDAO’s LayerZero bridge. Attackers minted 116,500 rsETH without backing and used those tokens as collateral on Aave to borrow about $190 million in legitimate assets. The borrowing triggered a liquidity crunch that produced more than $10 billion in net withdrawals from Aave.

The coalition said its aim is to restore backing for rsETH, stabilize Aave markets and return deposits to users. The Arbitrum Security Council froze 30,766 ETH, roughly $71.5 million, linked to the exploiter and moved the funds to an intermediary wallet that can only be accessed by further Arbitrum governance action.

Initial commitments to ‘DeFi United’ include a personal pledge of 5,000 ETH from Aave founder Stani Kulechov. Mantle’s core team proposed MIP-34, a credit facility that would loan up to 30,000 ETH to Aave DAO at an interest rate set at Lido’s rate plus 1% with a repayment window of up to 36 months. Bybit’s co-founder Ben Zhou said he will vote in favor of the Mantle proposal.

Liquid staking protocol Lido contributors proposed a one-time grant of up to 2,500 stETH if the recovery vehicle reaches full funding, noting that partial recovery could expose EarnETH vault depositors to losses amounting to several thousand ETH. Golem Foundation and Golem Factory announced a combined 1,000 ETH contribution. Ether.fi proposed a governance vote to deploy 5,000 ETH from its treasury. Noncustodial lender Tydro confirmed participation. Ethena acknowledged involvement without giving an amount, and Frax Finance indicated it will hold a governance vote to consider support. LayerZero published a recovery framework that includes incentives for early voting.

Circle’s chief economist Gordon Liao recommended raising Aave’s USDC borrowing cap from 14% to 50% to push rates higher and free liquidity. Circle’s CEO Jeremy Allaire backed the recommendation. Some Aave governance participants warned that raising the cap could trigger liquidations and create new risks for borrowers and markets.

Industry participants offered varied reactions. Matthew Pinnock, COO at Altura DeFi, described the response as a move toward more coordinated financial operations and urged clear rules and accountability. Georgii Verbitskii, founder of yield platform TYMIO, cautioned that details remain limited and said markets may shift toward more conservative base-layer configurations. Sergey Kravtsov, CEO of Papaya Finance, characterized the coalition as a voluntary, cross-protocol response that aimed to prevent bad debt from spreading.

Governance votes and formal commitments are still being finalized. The coalition has prioritized restoring rsETH backing and limiting losses for users while members complete governance procedures and funding decisions.