Key Highlights
- Aave completed liquidation of the Kelp DAO exploiter’s rsETH holdings across Ethereum and Arbitrum networks
- Liquidated assets were transferred to Recovery Guardian, a multisignature wallet operated by DeFi United
- Recovery fund has reached approximately 90% of the total ETH required to restore complete rsETH backing
- Legal complications have delayed access to 30,765 ETH frozen by Arbitrum DAO following restraining notice from US legal counsel
- Protocol’s total value locked has climbed back above $15B after falling to $14.2B
Aave has successfully executed the liquidation of all remaining rsETH holdings controlled by the Kelp DAO exploiter across both Ethereum and Arbitrum networks. This action represents a significant milestone in the DeFi United community initiative aimed at restoring rsETH backing and compensating affected users.
The liquidated assets have been routed to the Recovery Guardian, a multisignature wallet under DeFi United management. Aave has verified that the liquidation process left user funds untouched and required no activation of its Umbrella insurance system.
The April 18 security breach saw an attacker—believed to have connections to North Korea—exploit Kelp DAO’s LayerZero-integrated bridge to mint 116,500 unbacked rsETH tokens on Ethereum fraudulently. The attacker deployed these tokens as collateral across lending protocols, including Aave and Compound, to extract wrapped Ether.
The security incident saddled Aave with over $190 million in uncollateralized debt and sparked significant capital outflows. The protocol experienced a decline of nearly $12 billion in total value locked during the week immediately following the breach.
The liquidation process required Aave to implement a temporary governance-approved adjustment to the rsETH oracle pricing mechanism. This adjustment created an undercollateralized state in the attacker’s positions, enabling the liquidation to execute. The oracle configuration has since returned to standard operation.
DeFi United has accumulated contributions surpassing $320 million. Thaddeus Pinakiewicz, vice president of research at Galaxy Digital, indicates the fund requires approximately 10% additional ETH to achieve complete restoration.
Legal Challenges Create Recovery Obstacles
A complicating factor has emerged in the recovery timeline. Arbitrum DAO approved freezing 30,765 ETH linked to the exploit, intending to allocate these funds to DeFi United. Gerstein Harrow LLP, a US law firm, submitted a restraining notice last Friday to prevent this transfer.
The legal firm seeks to claim the frozen ETH as restitution connected to terrorism-related court judgments against North Korea. Aave has countered by filing an emergency motion seeking to remove the restraining notice.
Arbitrum DAO members continue voting on releasing the funds to DeFi United, with more than 90% of voters supporting the measure. The voting period concludes on Friday.
Awaiting Commitments from Major Protocols
DeFi United continues to await formal pledges from stablecoin providers Circle, Ethena, and Frax, as well as from Ink, the Kraken-developed Ethereum layer 2 solution.
Pinakiewicz stated these commitments are essential to “get it over the line and plug the hole.”
Aave’s TVL has demonstrated stabilization signals. DefiLlama tracking shows the protocol rebounded from $14.2 billion on April 26 to exceed $15 billion in recent periods.
Outflows from Aave’s lending platforms have diminished during the past week. Friday’s conclusion of the Arbitrum DAO vote will serve as a critical juncture for determining whether the recovery strategy can achieve full completion.
