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- Aave liquidated the Kelp DAO attacker’s remaining rsETH positions on Ethereum and Arbitrum.
- The DeFi recovery fund is now reportedly only 10% short of fully restoring rsETH backing.
- Aave’s TVL has rebounded above $15 billion after steep post-exploit outflows.
The decentralized finance sector may finally be turning a corner after one of the largest crypto exploits of 2026. Aave Labs confirmed this week that it has liquidated the remaining rsETH-linked positions tied to the Kelp DAO attacker across Ethereum and Arbitrum, a move that could help restore confidence in the battered DeFi lending market.
The liquidation is part of the broader “DeFi United” recovery initiative launched after the April 18 exploit that drained roughly $293 million and destabilized several lending protocols. According to Aave, the recovered collateral has now been transferred to Recovery Guardian, a multisignature wallet controlled by DeFi United.
DeFi Recovery Fund Moves Closer to Goal
The latest liquidation brings the recovery effort significantly closer to fully restoring backing for Kelp DAO’s restaked Ether token, rsETH. Thaddeus Pinakiewicz, vice president of research at Galaxy Digital, said the recovery fund is now only around 10% short of the ETH required to make users whole again.
The exploit sent shockwaves across decentralized finance markets after the attacker used stolen rsETH as collateral on Aave to borrow wrapped Ether. The move left the lending protocol exposed to more than $190 million in bad debt and triggered billions of dollars in liquidity disruptions.
Aave emphasized that its users were not directly impacted by the liquidation process and confirmed that its Umbrella insurance system was not activated during the recovery.
Legal Dispute Slows Final Recovery Efforts
Despite progress, a major portion of the recovery remains tied up in legal uncertainty. Around 30,765 ETH frozen by the Arbitrum DAO is currently under dispute after US-based law firm Gerstein Harrow LLP filed a restraining notice preventing redistribution of the assets.
In response, Aave reportedly submitted an emergency motion seeking to overturn the restriction. Meanwhile, Arbitrum DAO members are still voting on a proposal to release the frozen ETH to the recovery fund. More than 90% of voters currently support the measure, with voting expected to conclude Friday.
DeFi United is also waiting for financial support commitments from major crypto firms and stablecoin issuers including Circle, Ethena, Frax, and Ink, the Ethereum layer-2 network built by Kraken.
Aave TVL Shows Signs of Stabilization
The Kelp DAO exploit caused severe damage to Aave’s total value locked (TVL), which dropped by nearly $12 billion within a week as users rushed to withdraw funds.
Also Read: Aave vs U.S. Courts: The $71M Ethereum Dispute Shaking DeFi
However, recent data suggests the panic may be easing. Aave’s TVL has recovered from a low near $14.2 billion in late April and has now climbed back above $15 billion, signaling improving market confidence.
While the recovery process is not complete, the liquidation of the attacker’s remaining positions marks one of the strongest signs yet that DeFi protocols can coordinate effectively during a crisis.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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