Key Takeaways
(P1) Ethereum layer-2 Mantle's core team has proposed a credit facility of up to 30,000 ETH to the Aave DAO to address bad debt from the recent KelpDAO exploit.
(P2) "When we got hacked the industry got together and helped us. It is the only right thing that we do the same,” Bybit co-founder Ben Zhou said on X, confirming the exchange, as Mantle's biggest stakeholder, will vote yes on the proposal.
(P3) The proposal, MIP-34, outlines a loan structured with interest at Lido's rate plus one percent, repayable over 36 months. The move comes after an exploit left Aave, DeFi's largest lending protocol, with an estimated bad debt of $123.7 million to $230.1 million.
(P4) The loan is a central piece of "DeFi United," a coalition of protocols mobilizing to contain the fallout from the April 18 attack and prevent a wider crisis of confidence in the sector.
The crisis began when an attacker exploited a vulnerability in KelpDAO’s cross-chain bridge, which used LayerZero’s messaging infrastructure. The attacker minted 116,500 unbacked rsETH tokens and deposited them as collateral on Aave's Ethereum deployment, borrowing approximately $190 million in legitimate assets against the worthless collateral, according to security analysts.
This left Aave with impaired collateral and triggered a wave of withdrawals, with the total value of assets on the protocol plunging by $10 billion in the days following the incident. The WETH pool on Aave's mainnet deployment hit 100% utilization, freezing withdrawals and shaking depositor confidence.
Mantle's proposal is the largest single contribution to a growing, industry-wide relief effort. Aave founder Stani Kulechov personally pledged 5,000 ETH, while liquid staking protocol Lido Finance contributors have proposed a one-time contribution of up to 2,500 stETH. Ether.fi has also initiated a governance vote to deploy 5,000 ETH from its DAO treasury to the cause.
Other protocols, including Golem, Tydro, Ethena, and Frax Finance, have also confirmed contributions or signaled support, underscoring the sector's attempt to self-regulate and manage systemic risk without traditional intermediaries.
The Mantle proposal, MIP-34, will now go to a governance vote by MNT token holders. Its approval would provide a significant backstop for Aave and a vote of confidence in the "DeFi United" initiative. The move is being watched closely as a precedent for how the decentralized finance ecosystem handles large-scale insolvencies.
Meanwhile, other measures are being considered. An economist at USDC issuer Circle has proposed raising Aave's USDC borrowing cap to 50% from 14% to break the liquidity freeze, a move that has drawn both support for restoring withdrawals and criticism for potentially triggering liquidations.
This article is for informational purposes only and does not constitute investment advice.
