Aave Restores WETH Borrowing Amid Kelp DAO Recovery and Legal Battles

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Aave restores WETH borrowing as Kelp DAO recovery moves ahead

Good news for those of us using Aave! They’ve brought back borrowing with wrapped Ether on all the markets that were affected by that Kelp DAO hack back in April. It’s a positive step as Aave gets back on its feet after that incident.

Summary

  • Aave has restored wrapped Ether borrowing across affected markets as recovery efforts tied to the Kelp DAO exploit continue.
  • Court approved transfers involving 30,765 ETH remain tied to an unresolved legal dispute linked to North Korean hacking allegations.
  • Kelp DAO plans to discontinue rsETH bridging on several networks after June 15 while Aave liquidity conditions continue adjusting after the exploit.

Aave has brought back the ability to borrow using wrapped Ether (WETH) as collateral on several of its platforms, including Ethereum, Arbitrum, Base, Mantle, and Linea. This change, announced by Stani Kulechov on Sunday, also lets users trade their collateral or debt. The update applies to Aave V3 on these networks.

Aave implemented temporary restrictions after a security incident on April 18th. Attackers targeted Kelp DAO’s bridge and used fake collateral (rsETH) to borrow significant amounts of Ether on Aave V3. Once efforts to address the issue proved successful without further risk to users, Aave’s community voted to lift the restrictions.

The first steps in fixing the issue involved using recovered Ether to support rsETH, allowing withdrawals again, and working with other DeFi projects involved in the recovery effort to ensure token compatibility.

Court battle over frozen Ether still unresolved

The legal and official processes for handling the Ether that was frozen due to the recent security issue are still in progress.

On May 15th, a formal proposal was put to a vote regarding the transfer of approximately $71 million worth of ETH (30,765 ETH) from the Arbitrum Security Council to Aave LLC. This request came after authorities froze the funds on April 21st, identifying them as being connected to a recent security breach. Affected parties needed approval to move the frozen assets.

On May 9th, Judge Margaret Garnett, in a Manhattan federal court, adjusted a previous legal notice to permit the transfer to move forward. This adjustment safeguards those involved in the governance process – voters and participants – from being personally liable due to the legal order.

Despite ongoing legal challenges, claims regarding the stolen Ether continue. Lawyers from Gerstein Harrow LLP, representing families who won judgments against North Korea for supporting terrorism, have argued in court that the stolen funds could be connected to the Lazarus Group, a hacking organization believed to be backed by the North Korean government. Blockchain analysis suggests North Korean actors were responsible for the theft, but no court has officially confirmed this connection as a legal fact.

Following the recent disagreement, Kulechov explained that the funds recovered rightfully belong to the users who were impacted by the security breach, and should not be considered the attackers’ legal property.

Lending activity and liquidity conditions change after exploit

According to data from DefiLlama, Aave experienced a significant drop in its total value locked following a recent incident. As of Monday, Aave held approximately $14.8 billion, down from almost $23.5 billion in March.

Attackers, believed to be connected to North Korea, stole about 116,500 Kelp DAO Restaked Ether tokens, causing roughly $195 million in losses on Aave. They used the stolen tokens to remove wrapped Ether from lending platforms.

Kelp DAO is still working to recover and is now focusing on simplifying its network. They announced they will stop allowing transfers of rsETH between their system and the Optimism, HyperEVM, Unichain, Avalanche, and MegaETH networks after June 15th. This change is intended to improve security and make the system work more smoothly.

Kelp DAO announced that anyone trying to get their funds back after the deadline will be charged a 100 USDC fee per account. They also recently moved rsETH to Chainlink’s system for more reliable data, and still believe the initial problem was caused by weaknesses in LayerZero, the cross-chain system they used to work with.

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2026-05-18 09:04