Aave Restores WETH Borrowing After Kelp DAO Exploit
Aave Restores WETH Borrowing After Kelp DAO Exploit – Protocol Lifts Freeze as rsETH Recovery Advances
Key Takeaways
- Aave has restored loan to value ratios for wrapped Ether across all affected networks after a temporary freeze.
- The freeze followed the April 18 exploit of Kelp DAO’s rsETH bridge, which led to about 195 million dollars in bad debt on Aave.
- Aave’s total value locked fell by more than 8 billion dollars after the incident and currently stands at about 14.8 billion dollars.
- Kelp DAO is sunsetting rsETH bridging on selected networks after June 15 and introduced a 100 USDC recovery fee per address after that date.
Aave Restores WETH Loan to Value Ratios Across Multiple Networks
Aave users can once again borrow against wrapped Ether on the decentralized finance protocol after the project lifted a precautionary freeze introduced in April. According to Aave founder Stani Kulechov, the protocol restored loan to value ratios for wrapped Ether to pre incident levels on Aave V3 Ethereum Core, Ethereum Prime, Arbitrum, Base, Mantle and Linea.
The freeze had been applied to wrapped Ether markets as well as to rsETH and wrsETH reserves following the exploit of Kelp DAO’s infrastructure. In a governance proposal that passed on Saturday, Aave stated that progress in the technical recovery process made it possible to lift the freeze without compromising user protection.
With the restoration of loan to value ratios, users can again borrow against wrapped Ether, including through collateral and debt swaps. The measure marks the completion of what Aave described as Phase II of the rsETH recovery plan.
Background: RsETH Exploit and Impact on Aave
The incident traces back to April 18, when attackers believed to be linked to North Korean state backed actors exploited Kelp DAO’s LayerZero powered bridge. The attackers stole 116,500 Kelp DAO Restaked Ether tokens and used them as collateral on Aave V3 to borrow wrapped Ether.
This sequence resulted in approximately 195 million dollars in bad debt on Aave. In response, Aave implemented temporary freezes on relevant reserves as a risk containment measure.
The financial impact was visible in Aave’s total value locked. According to data cited from DefiLlama, the protocol’s TVL dropped by more than 8 billion dollars following the exploit. As of Monday, Aave’s TVL stands at about 14.8 billion dollars, compared with 23.5 billion dollars in March.
The incident also affected deposit patterns. Tom Wan, head of data at Entropy Advisors, stated that since the hack, wrapped stETH and wrapped Ether deposits have declined. He quantified the decrease at 1.2 billion dollars for wstETH and 1.76 billion dollars for weETH.
Liquidity Conditions and Borrowing Rates After the Freeze
Following the disruption, liquidity dynamics on Aave changed. Ether utilization has fallen back below 90 percent, according to Tom Wan. At the same time, the annualized borrowing rate has decreased to 1.9 percent.
Lower utilization indicates that a larger share of supplied Ether is currently unused within the protocol. A reduced borrowing rate reflects this increased liquidity. Wan noted that leveraged Ether yield strategies involving wstETH or weETH relative to ETH have become profitable again under current conditions.
For users evaluating lending and borrowing conditions on Aave, the restored loan to value ratios and lower borrowing costs mark a return to more typical market parameters compared with the immediate aftermath of the exploit.
Kelp DAO Adjusts Network Support and Recovery Process
Parallel to Aave’s measures, Kelp DAO is implementing changes to its own infrastructure. On Sunday, the protocol announced that it will consolidate supported networks for rsETH based on usage and integrations.
As part of this process, Kelp DAO will sunset rsETH bridging on several networks after June 15. The affected networks include Optimism, HyperEVM, Unichain, Avalanche and MegaETH.
After the deadline, users seeking to recover funds on those networks will face a fee of 100 USDC per address, according to Kelp DAO.
Earlier in May, Kelp DAO migrated its restaking token rsETH to the Chainlink oracle platform. The protocol has continued to attribute the attack to LayerZero’s cross chain infrastructure, which previously served as its provider.
These steps form part of Kelp DAO’s broader recovery effort following the exploit and are designed to adjust the token’s technical setup and network footprint.
Governance and Risk Controls in Focus
The sequence of events highlights how decentralized protocols respond to security incidents through governance and parameter adjustments. In Aave’s case, the temporary freeze and subsequent restoration of loan to value ratios were executed through formal governance procedures.
The passed proposal emphasized that lifting the freeze would not compromise user protection, reflecting an assessment that recovery progress had reduced systemic risk linked to rsETH collateral.
For users active in decentralized lending markets, such governance decisions directly affect borrowing capacity, collateral eligibility and liquidity conditions across multiple networks.
Our Assessment
Aave has resumed normal wrapped Ether borrowing operations after completing Phase II of its rsETH recovery plan. The restoration of loan to value ratios follows a significant exploit that generated about 195 million dollars in bad debt and reduced the protocol’s total value locked by more than 8 billion dollars. At the same time, Kelp DAO is narrowing its network support and adjusting its technical infrastructure as part of its recovery process. Together, these measures indicate that both protocols are moving from emergency containment toward operational normalization under revised risk parameters.
