Aave is moving closer to his full recovery after Kelp DAO's devastating attack. The lending protocol has just liquidated the hacker's remaining positions, unlocking considerable value. But the road to regained confidence remains strewn with pitfalls.
In brief
- Aave has liquidated the remaining rsETH positions of attacker Kelp DAO, marking a major step forward in its turnaround plan.
- The protocol is now only 10% short of the amount needed to fully restore the ETH reserve and compensate users.
- Aave's TVL saw a notable stabilization, rising back to $15 billion after dropping to $14.2 billion.
Aave sharply reduces its losses after the liquidation of the hacker
Aave Labs on Wednesday formalized the liquidation of the rsETH positions of the operator of Kelp DAO on Ethereum and Arbitrum. This decisive action represents a turning point in the recovery orchestrated by “DeFi United”, the recovery initiative launched after the exploitation of the $293 million breach on April 18.
The liquidated collateral was transferred to a secure multi-signature wallet, managed by the recovery team. According to Galaxy Digital's Thaddeus Pinakiewicz, the protocol is now only short 10% of the Ether needed to fund the full restoration of the rsETH token. A remarkable progression which shows the capacity of the protocol to reorganize itself in the face of crises.
This exploitation had triggered a brutal domino effect. The attacker used the stolen rsETH as collateral to borrow wrapped Ether, creating over $190 million in bad debt and causing mass withdrawals. Aave saw its TVL plummet by $12 billion in just one week.
The company clarified that user funds remained intact and that the “Umbrella” insurance fund, an automated protection mechanism, had not been activated. Transparency which is extremely important in restoring trust.
Persistent challenges and the first signs of stabilization
Despite these advances, Aave continues to face legal obstacles important. Arbitrum DAO freezes an additional 30,765 ETH, but a US law firm has filed an injunction to block its redistribution. Aave responded by filing an emergency motion to vacate the injunction. At the same time, Arbitrum DAO is currently voting on the release of funds: more than 90% of voters support the proposal, with a verdict expected on Friday.
On the liquidity front, the data shows an encouraging stabilization. The protocol's TVL rose 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. This institutional support remains essential to “finalize the project and fill the gaps,” notes Pinakiewicz.
Aave does not emerge from this storm unscathed, but it demonstrates impressive resilience. The liquidation of the hacker's loot and the gradual stabilization of the TVL mark the beginnings of a renaissance. It remains to transform this technical recovery into a lasting restoration of confidence.
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