The industry is coming together. After the attack on Kelp DAO, the market faced a rare scenario where participants are not arguing but trying to quickly close the gap. At stake is the stability of several protocols at once and trust in collateral assets.
The problem turned out to be deeper than a single hack. It’s not just about lost funds, but also about systemic risk for lending.
How the Hole in rsETH Emerged
It all started with a bridge. On April 18, an attacker forged a message and bypassed verification, which allowed them to issue 116,500 rsETH without real collateral.
These tokens did not stay put. They were quickly distributed to wallets and used as collateral in lending protocols, including Aave and Compound. As a result, part of the system began operating with assets that were not actually backed.
Why This Became a Systemic Problem
The market does not like such imbalances. When collateral loses its peg to real value, all related positions are at risk.
In practice, it looked like this. Protocols accepted rsETH as a full-fledged asset, issued loans against it, and then it turned out that part of the collateral was “empty.” This created a chain of risks for liquidations and balances.
What the DeFi United Coalition Proposes
The response was large-scale. A group of projects and industry participants prepared a detailed recovery plan that covers two directions at once.
- First — return the collateral.
- Second — carefully close problematic positions so as not to crash the market.
Restoring rsETH Collateral
The key step is already prepared. Coalition participants stated that they have gathered enough ETH for the full recapitalization of rsETH.
The funds will be introduced gradually. ETH will be converted to rsETH and returned to the system to restore the balance between token issuance and its collateralization.
How Problematic Positions Will Be Closed
The hardest part is loans. A significant share of the “extra” rsETH is already being used as collateral in active positions.
The plan does not call for drastic action. Instead of chaotic liquidations, a managed scenario is proposed in which positions will be closed gradually.
To do this, the parameters for assessing rsETH within the protocols will be temporarily changed. This will allow problematic positions to be liquidated correctly and assets to be returned without sharp swings.
How Much Can Be Recovered
There are already numbers. According to participants’ estimates, about 13,000 ETH can be freed up in Aave alone.
These funds will be used to cover the deficit. In essence, the market itself is redistributing liquidity to close the resulting gap.
Why This Case Matters for All of DeFi
This is not a typical incident. Usually after hacks, the market gets a fragmented reaction, where each protocol solves the problem separately.
Here, the picture is different. Several projects are synchronizing their actions and working as a single system. This changes the approach to risk management.
Risks Remain
The plan looks well thought out, but it depends on many conditions. Votes, technical implementation, and precise execution of each stage are required.
Any failure can delay the process. In this case, recovery will take longer, and the market will remain in a state of uncertainty.
What’s Next?
The next few weeks will be crucial. If the plan is implemented, rsETH will regain full collateral, and credit markets will stabilize.
If the process drags on, the consequences may last for months. In this case, trust in such assets will take longer to recover.
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