Aave service providers have launched a deficit relief initiative called DeFi United, designed to fully cover the underbacked rsETH liquid staking token from KelpDAO. The initiative includes contribution pledges from several ecosystem projects: EtherFi has committed 5,000 ETH, Lido 2,500 ETH, and Golem 1,000 ETH.

Aave founder Stani Kulechov also personally pledged 5,000 ETH (approximately $11.6 million), emphasizing that Aave represents his life's work. Additional participants, including Ethena, Ink Foundation, Tydro, and LayerZero, have announced participation, though have not specified their contribution amounts.

The rsETH asset is facing an estimated shortfall of 118,000 ETH following the KelpDAO exploit executed by the DPRK. Arbitrum also recovered 30,000 ETH connected to the exploit, which could be directed toward DeFi United. 75,700 ETH has already been swapped by the DPRK via THORChain. Kulechov called for THORChain to contribute the roughly $450,000 in swap fees generated from those transactions to support DeFi United.

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Fluid extended its aWETH Redemption Protocol to L2 networks, launching first on Arbitrum and Base. The solution allows Aave users to swap their frozen aWETH collateral for wstETH or weETH, for a fee of roughly 2%. On Ethereum mainnet alone, the protocol has already facilitated $400 million in aWETH redemptions.

The service helps protocols unwind looped Aave positions more efficiently. It works by pairing protocols running looping strategies with WETH lenders on Aave. Initial liquidity was absorbed within hours of launch, and the pool is expected to be replenished. EtherFi also launched an aWETH redemption tool for Ethereum mainnet.

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Circle's Chief Economist Gordon Liao has published an Aave governance proposal to raise the interest rate slope on the USDC market on Aave v3 Ethereum Core from 10% to 40% initially, with a target of 50%. He believes that higher rates will attract new USDC liquidity providers in an effort to bring utilization back down. The proposal comes in response to the KelpDAO exploit, which has driven the USDC lending market on Aave to 100% utilization for the last four days, leaving lenders unable to withdraw their funds due to insufficient liquidity.

As the proposal notes, debt repayments are being immediately absorbed by a queued withdrawal backlog. The proposal faced community pushback as raising the rate slope can accelerate harm. Higher rates risk triggering liquidations for borrowers who are already trapped. Liquidity providers are reluctant to deposit due to the current uncertainty around a potential lender haircut.

Circle has also faced broader criticism for not offering to inject liquidity directly into its own asset pool as the issuer of USDC. Earlier this month, Circle failed to freeze USDC connected to the DPRK in the Drift Protocol exploit.

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Disclaimer: Content is for informational purposes only, not endorsement or investment advice. The accuracy of information is not guaranteed.