Earlier this month, ETH withdrawals on Aave froze. Liquidation risk kept building. There was no exit available for users trying to unwind positions. Fluid reached out to 1inch on April 19 at 21:39. By 03:10 the next morning, emergency routing was live in production. The whole response took under six hours from initial request to working solution.
On April 18, the ETH utilization in Aave rose to 100 percent, effectively freezing withdrawals to thousands of users. As the lenders could not exert positions, they were still accumulating exposure to liquidation, which posed a scenario of high risk on the platform.
Exploit Rooted in Cross-Chain Vulnerability
The Aave attack was based on an advanced attack on LayerZero infrastructure. It is claimed that attackers breached internal RPC nodes and flooded external nodes, causing the decentralized verification network (DVN) of the system to use distorted data.
This enables the attacker to spoof that rsETH has been burned along a chain of sources. According to this false authentication, the bridge escrow of Kelp emitted more than 116,000 rsETH on Ethereum without appropriate support. The attacker then pledged these assets on Aave as collateral to borrow real WETH, placing a lot of bad debt into the system.
Emergency Infrastructure Built in Under 24 Hours
The situation got worse, and Fluid, one of the biggest borrowers on Aave, acted fast to avert the losses. The team created the aWETH Redemption Protocol, a scheme that allows users to redeem frozen aWETH positions into liquid assets like wstETH or weETH without completely leaving Aave.
The leaders of Fluid state that the protocol was developed and implemented within less than a day. The team had access to existing infrastructure, enabling them to work fast, converting an idea into a workable system within a night.
1inch Enables Rapid Liquidity Routing
Though the core redemption system was created by Fluid, 1inch was very instrumental in implementation. The aggregator installed the Fluid solution into its routing infrastructure, and users could easily change positions into available liquidity.
With its Pathfinder algorithm, 1inch allowed efficient routing in the liquidity layer of Fluid. Integration took only a few hours, and staging was deployed just after midnight, and full production rollout just before sunrise.
This partnership allowed users to get out of positions effectively, even in tight market conditions.
Over $135 Million in Liquidity Unlocked
The consequences of the emergency response were instantaneous. In the initial 24 hours:
- Over $135 million aWETH was processed.
- Hundreds of thousands of jobs had been turned into fungible assets.
- Affected users were guaranteed of reduced risks of liquidation.
Importantly, the solution brought back optionality. Users were provided with a direct avenue of controlling their exposure rather than being at the mercy of market conditions stabilizing.
Lessons for DeFi Risk Management
The Aave attack episode has sparked the debate of risk controls in DeFi. Response experts noted that it is important to have borrowing limits, exposure limits, and better validation frameworks of cross-chain assets.
It was also questioned whether it is wise to depend on a single validation system. The players in the industry proposed that cross-chain protocols should have numerous independent validators to minimize the chances of manipulation.
A Defining Moment for DeFi Coordination
In addition to the exploit itself, the response was a pivotal moment in the history of decentralized finance. The ecosystem projects worked in real time, but not based on formal arrangements but based on the incentives to stabilize the market.
More extensive programs, such as DeFi United, were introduced to resolve the bad debt created and recovery efforts alongside technical corrections.
