Aave re-enables WETH borrowing as Kelp DAO recovery progresses
Aave has reopened borrowing against wrapped Ether (WETH) across several affected markets as the protocol continues to unwind emergency measures put in place after the April exploit tied to Kelp DAO.
Stani Kulechov said in a Sunday post that loan-to-value (LTV) ratios for WETH have been reinstated on Aave V3 Ethereum Core, Ethereum Prime, Arbitrum, Base, Mantle and Linea. The change lets users borrow again against WETH and resume collateral and debt swaps that were restricted during the emergency response.
Why the freeze happened
Aave temporarily froze WETH borrowing in the wake of an April 18 incident in which attackers exploited Kelp DAO’s LayerZero-powered bridge. The attackers allegedly used unbacked rsETH (Kelp DAO Restaked Ether) as collateral on Aave V3 to pull large amounts of WETH, creating roughly $195 million in bad debt and draining liquidity. About 116,500 rsETH tokens were reportedly taken in the attack.
Recovery steps so far
Recovery has proceeded in stages. Teams restored backing for rsETH using Ether recovered after the exploit, reopened withdrawals, and coordinated token support with protocols participating in the DeFi United recovery effort. These steps, together with assurances from the recovery process that further user risk was low, led governance participants to approve lifting the WETH restrictions.
Legal and governance complications
Separately, legal and governance processes around frozen Ether linked to the exploit remain active. On May 15 a binding Arbitrum Improvement Proposal went to a vote after affected parties sought permission to move 30,765 ETH (about $71 million at the time) from the Arbitrum Security Council wallet to an address controlled by Aave LLC. Those funds had been frozen on April 21 after investigators tied them to wallets connected to the exploit.
A Manhattan federal judge, Margaret Garnett, modified an earlier restraining order on May 9 to permit the transfer while shielding governance voters and related participants from personal liability tied to the order. But competing legal claims persist: Gerstein Harrow LLP, representing families pursuing unpaid terrorism judgments against North Korea, has argued in court filings that the assets might be linked to the Lazarus Group, citing blockchain analytics that have attributed the exploit to North Korean state‑backed actors. That attribution has not been established as a legal fact by any court. Kulechov has maintained that the recovered assets belong to users affected by the exploit and should not be treated as attackers’ property.
Impact on Aave and ongoing Kelp DAO actions
The incident hit Aave’s metrics hard: DefiLlama data shows Aave’s total value locked (TVL) fell by more than $8 billion, from about $23.5 billion in March to roughly $14.8 billion as of Monday.
Kelp DAO is moving forward with its own remediation and consolidation. The protocol announced it will discontinue rsETH bridging support on Optimism, HyperEVM, Unichain, Avalanche and MegaETH after June 15, citing a network consolidation focused on security and integration. Users attempting to recover funds after that deadline will face a 100 USDC fee per address. Earlier this month Kelp DAO also migrated rsETH price feeds to Chainlink oracles and reiterated that it attributes the exploit to vulnerabilities in LayerZero’s cross-chain infrastructure, its former provider.
What to watch next
Key developments to monitor include the outcome of the Arbitrum governance vote, any further court rulings on the frozen Ether, and how Aave’s markets and TVL recover as normal borrowing activity resumes.
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