Aave crosses a key milestone after the historic Kelp DAO attack

Aave is approaching its full recovery after the devastating Kelp DAO attack. The lending protocol has just liquidated the hacker’s last positions, unlocking considerable value. But the road to regained trust remains fraught with challenges. 

Aave greatly reduces its losses after liquidating the hacker

Aave Labs officially announced on Wednesday the liquidation of the Kelp DAO exploiter’s rsETH positions on Ethereum and Arbitrum. This decisive action represents a turning point in the recovery orchestrated by “DeFi United,” the recovery initiative launched after the $293 million exploit that occurred on April 18.

The liquidated collateral was transferred to a secure multisignature wallet managed by the recovery team. According to Thaddeus Pinakiewicz from Galaxy Digital, the protocol is now only missing 10% of the Ether needed to fully fund the restoration of the rsETH token. This remarkable progress shows the protocol’s ability to reorganize in the face of crises.

This exploit triggered a brutal domino effect. The attacker had used the stolen rsETH as collateral to borrow wrapped Ether, generating over $190 million in unrecoverable debts and causing massive withdrawals. Aave saw its TVL plummet by $12 billion in just one week.

The company specified that user funds remained intact and that the “Umbrella” insurance fund, an automated protection mechanism, was not activated. This transparency is crucial to restoring trust.

Persistent Challenges and Early Signs of Stabilization

Despite these advances, Aave still faces significant legal hurdles. Arbitrum DAO is freezing an additional 30,765 ETH, but a U.S. law firm has filed an injunction to block its redistribution. Aave responded by filing an emergency motion to overturn this injunction. Meanwhile, Arbitrum DAO is currently voting on unlocking the funds: more than 90% of voters support the proposal, with a verdict expected Friday.

On the liquidity front, the data shows an encouraging stabilization. The protocol’s TVL has risen above $15 billion, reversing the downward trend of previous weeks. This fragile rebound suggests that users are regaining confidence.

However, DeFi United is still awaiting commitments from major stablecoin issuers: Circle, Ethena, and Frax, as well as Kraken and its Layer 2. These institutional supports remain essential to “finalize the project and fill the gaps,” notes Pinakiewicz.

Aave does not emerge unscathed from this storm, but it demonstrates impressive resilience. The liquidation of the hacker’s loot and the gradual stabilization of the TVL mark the beginning of a rebirth. The challenge now is to turn this technical recovery into a sustainable restoration of trust.