Mantle Offers 30000 ETH Credit Line To Support Aave After rsETH Exploit

TLDR

• Mantle proposed a loan of up to 30,000 ETH from its treasury.
• The loan would help Aave DAO cover rsETH-related bad debt.
• The Kelp DAO exploit led to about $190 million in borrowed assets.
• The proposed loan term may run for up to 36 months.
• Aave DAO may offer revenue and AAVE tokens as backing.

Mantle has proposed a 30,000 ETH loan facility for Aave DAO to help cover bad debt caused by the Kelp DAO rsETH bridge exploit. The proposal includes a 36-month term, yield-based interest, revenue backing, AAVE token collateral, and governance rights for Mantle.

Mantle moves to support Aave after rsETH exploit

Mantle Core submitted a draft proposal known as MIP-34. The proposal would allow the Mantle Treasury to lend up to 30,000 ETH to Aave DAO. The funds would be used only for debt tied to the rsETH incident.

The proposed loan would run for up to 36 months. Mantle suggested an interest rate based on Lido yield plus 1%. However, the final rate may be set later by the parties.

Mantle said the loan would turn idle treasury assets into a yield position. At the same time, it would support a wider recovery plan for Aave. “The loan would form part of a wider coordinated framework,” Mantle said.

Kelp DAO attack creates large Aave shortfall

Aave said the Kelp DAO attack involved unbacked rsETH tokens. The attacker used a single-verifier setup in LayerZero to mint those tokens. The tokens were then used as collateral on Aave.

The attacker borrowed about $190 million in real assets. Aave said its own system worked as designed. However, the bad collateral created a possible shortfall in Aave V3 markets.

Aave estimated bad debt at about $124 million if losses are shared across rsETH holders. Yet, the amount could rise above $230 million if losses stay on layer 2 markets. Mantle and Arbitrum could face larger exposure in that case.

Loan terms include backing and governance rights

The proposed terms include no penalty for early repayment. Aave DAO also proposed backing the loan with 5% of protocol revenue. It may also provide at least $11 million in AAVE tokens.

Mantle would gain delegated voting power over about 130,000 AAVE tokens. Collateral would be held in a multisig wallet. The structure also includes default protections for Mantle.

Other DeFi groups have joined the relief effort. Golem Foundation and Golem Factory pledged 1,000 ETH. Aave CEO Stani Kulechov also committed 5,000 ETH to DeFi United.

Ink Foundation, Frax, LayerZero, Ethena, EtherFi Foundation, and Lido are also involved. Frax said, “We will work together in positive sum with DeFi United.” LayerZero said it is working with Aave, EtherFi, Ethena, Arbitrum, and Kelp.

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