Aave considers yields on charitable donations, moving on from rsETH exploit

Aave is considering a radical mechanism that would allow users to donate the yields from their deposited capital to humanitarian causes while still retaining access to their principal.

The proposal was posted on the lending protocol’s governance forum as a “Temp-Check” to gauge community sentiment and is being seen by some quarters as the protocol’s first show of stabilization following one of the most damaging episodes in its history.

Aave currently holds $14.62 billion in total value locked (TVL), according to DeFiLlama, while its native token AAVE is currently trading at $88.05, down 2.8% over the past 24 hours.

What is Aave actually proposing?

The governance post, titled “Principal-Preserving Charitable Giving Layer for Aave App,” outlines a system in which users deposit fiat currency or crypto assets into Aave’s existing yield-generating infrastructure.

Their principal remains intact and accessible at any time, but the yield produced by those deposits is automatically redirected to a charitable cause of the depositor’s choosing. The proposal envisions support for a range of humanitarian initiatives, one where there is transparent on-chain tracking of how funds are allocated and what outcomes are achieved.

The mechanism is designed to address what the proposal’s authors described as problems with traditional charities and donations. The authors pointed out that the current setup causes donors to permanently part with their capital. It also highlighted that humanitarian organizations struggle with unpredictable cash flows, and visibility into how funds are used remains limited.

The proposed solutions to the problem are that “users deposit fiat or crypto while maintaining access to their principal.”

This deposited capital is then routed into yield-generating financial infrastructure, in this case, an Aave-based one. The generated yield is then allocated towards causes or humanitarian initiatives chosen by the user.

The post stated that the on-chain infrastructure brings transparency into the flow of funds and charitable allocation, while enabling continuous funding streams for the charities.

The proposal, if it is accepted, would mirror the pressure that led the Ethereum Foundation to commit to staking ETH to fund its commitments, instead of permanently selling from its stash when it has to fund a cause. 

Ethereum co-founder, Vitalik Buterin, who is also a regular donor to charitable causes and DeFi projects, could also theoretically find good utility in the Aave proposal. 

What happened with the rsETH exploit?

The proposal comes exactly one month after an attacker exploited a vulnerability in KelpDAO’s LayerZero-powered bridge, forging a cross-chain transfer message that caused 116,500 rsETH tokens to be released from the Ethereum-side bridge without any corresponding burn on the source chain. 

The attacker then deposited approximately 89,567 of those unbacked tokens into Aave as collateral, borrowing roughly $190 million in ETH and related assets across Ethereum and Arbitrum. A total of over $292 million was lost, with Aave losing over $11.6 billion in TVL.

It took an ecosystem effort to mitigate the loss and its potential impact. Some protocols and individuals formed a coalition called DeFi United; they raised over $300 million as relief fund to support the recovery effort and restore rsETH. Aave founder and CEO Stani Kulechov personally committed 5,000 ETH to the relief fund.

Is the Aave crisis actually over?

The evidence suggests the worst phase has passed. On 14 May, Kelp DAO reopened rsETH withdrawals, bridging, and EigenLayer claims as part of a staged restart plan. 

Yesterday, 17 May, Aave restored normal loan-to-value ratios for wrapped ether (WETH) across six of its V3 networks, including Ethereum Core, Arbitrum, Base, Mantle, and Linea, reversing the emergency restrictions imposed in the days after the exploit. Also, part of the stolen funds that were frozen on Arbitrum, $71 million in ETH on Arbitrum, have reportedly been moved to an Aave-controlled wallet and subsequently burned.

The charitable giving proposal, in that context, reads as something more than a policy idea. It is also a signal that the Aave community is ready to turn the page and articulate a forward-looking identity for the protocol, one rooted in public good rather than crisis management.

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