Aave restores WETH borrowing across six markets as Kelp DAO exploit recovery enters new phase

Aave has restored WETH loan-to-value ratios across six deployments, Ethereum Core, Ethereum Prime, Arbitrum, Base, Mantle, and Linea, marking the most significant step yet in recovering from an April exploit that drained nearly $292 million in rsETH from Kelp DAO’s cross-chain infrastructure.

The decision effectively allows users to once again borrow against WETH collateral using collateral swaps and debt swap functions.

The restoration marks a critical step in stabilizing lending activity after the April 18 exploit involving Kelp DAO, in which attackers allegedly minted unbacked rsETH tokens and used them as collateral to drain liquidity from lending markets.

The incident disrupted borrowing conditions across DeFi and forced emergency intervention from multiple protocols.

Kelp DAO exploit rattled DeFi lending markets

The exploit centered on Kelp DAO’s LayerZero-connected bridge infrastructure, where attackers reportedly drained approximately 117,132 rsETH tokens valued at nearly $292 million.

Those assets were then deposited into Aave as collateral to borrow legitimate wrapped Ether, creating what analysts described as a major liquidity imbalance.

In the immediate aftermath, Aave froze several rsETH-related markets and reduced borrowing limits tied to WETH exposure. The protocol also experienced billions of dollars in Ether withdrawals as users rushed to reduce risk exposure.

“Aave has restored WETH loan-to-value (LTV) ratios across affected networks, allowing users to once again borrow against WETH,” — Aave update cited by MoneyCheck.

The recovery process has involved coordinated support from several DeFi participants under what has been described as the “DeFi United” recovery initiative.

The effort aims to restore rsETH backing while containing systemic spillover into broader lending markets.

Recovery efforts move into a new phase

Aave founder Stani Kulechov described the latest borrowing restoration as the “next phase” of the rsETH technical recovery plan.

The protocol’s decision to normalize borrowing conditions suggests that risk teams believe the worst liquidity pressures may have eased.

Earlier recovery measures included the liquidation of remaining rsETH-backed positions connected to the attacker and the gradual replenishment of stolen assets through multisignature recovery wallets controlled by Aave and Kelp DAO stakeholders.

“We believe ecosystem collaboration matters most in moments like this, and our priority is achieving the strongest possible available outcome for users.”

Aave, in a statement on the DeFi United recovery effort.

Kelp DAO has also outlined plans to progressively refill the stolen rsETH supply over a two-week period before fully restoring withdrawals and normal protocol operations.

Investors remain focused on systemic DeFi risks

For crypto investors, the incident has renewed scrutiny around the interconnected nature of DeFi collateral systems and the risks posed by cross-chain infrastructure.

The exploit demonstrated how vulnerabilities in one protocol can rapidly affect liquidity conditions across multiple lending markets.

Industry observers noted that Aave’s rapid containment measures likely prevented broader contagion, but the event also exposed structural weaknesses tied to collateral onboarding and bridge security.

Despite the disruption, the restoration of WETH borrowing is being viewed as an important signal that liquidity conditions are stabilizing.

However, investors continue monitoring whether recovery funds and ecosystem commitments will be sufficient to fully restore rsETH backing and offset protocol losses.