Aave has reactivated borrowing for wrapped Ether (WETH) across multiple markets as the decentralized lending platform continues to address the aftermath of an exploit that occurred in April involving Kelp DAO. The move restores loan-to-value ratios for WETH collateral on Aave V3 Ethereum Core, Ethereum Prime, Arbitrum, Base, Mantle, and Linea, enabling users to borrow against WETH again and perform collateral or debt swaps.
According to Aave’s governance documents, the restrictions were put in place as emergency measures after attackers exploited Kelp DAO’s LayerZero-based bridge on April 18, using unbacked rsETH as collateral on Aave V3 to borrow large amounts of WETH. Following recovery efforts that progressed without additional user risk, governance participants approved the removal of the WETH freeze.
Earlier stages of recovery involved restoring backing for rsETH with recovered funds, reopening withdrawals, and coordinating token support from protocols participating in the DeFi United recovery initiative.
Meanwhile, legal and governance processes regarding frozen Ether tied to the exploit are still underway. A binding Arbitrum Improvement Proposal was opened for voting on May 15, seeking approval to transfer 30,765 ETH, worth about $71 million at the time, from the Arbitrum Security Council wallet to an address controlled by Aave LLC. Court filings indicated the funds were frozen on April 21 after investigators linked the assets to wallets associated with the exploit.
Before the governance vote, Judge Margaret Garnett of the Manhattan federal court modified an earlier restraining notice on May 9, allowing the transfer to proceed while protecting governance participants from personal liability. However, legal claims over the Ether remain active, with Gerstein Harrow LLP representing families seeking judgments against North Korea, arguing that the assets could be linked to the Lazarus Group. No court has formally determined this attribution as a legal fact.
Data from DefiLlama shows that Aave’s total value locked dropped by over $8 billion following the incident, with the protocol holding approximately $14.8 billion as of Monday, compared to nearly $23.5 billion in March. The exploit generated about $195 million in bad debt on Aave, as attackers stole around 116,500 Kelp DAO Restaked Ether tokens and used them to drain WETH liquidity.
Kelp DAO continues its recovery efforts separately, announcing plans to discontinue rsETH bridging support on Optimism, HyperEVM, Unichain, Avalanche, and MegaETH after June 15, as part of a network consolidation initiative focused on security. Users seeking to recover funds after the deadline will incur a 100 USDC fee per address. Earlier this month, the protocol also migrated rsETH to Chainlink’s oracle infrastructure, citing vulnerabilities in LayerZero’s cross-chain systems.