Aave Labs has taken a bold step in its recovery strategy, successfully liquidating the remaining rsETH positions held by the hacker responsible for the catastrophic Kelp DAO exploit. This decisive action on both Ethereum and Arbitrum is part of the broader efforts under the 'DeFi United' initiative to replenish and support the decentralized finance ecosystem.
On May 7, Galaxy Digital’s Thaddeus Pinakiewicz revealed that Aave had narrowed its path to recovery, now standing just 10% short of the necessary Ether to restore the Kelp DAO's restaked ETH (rsETH) token. The liquidation dealt with collateral tied to a staggering $293 million hack that shook the foundations of the DeFi lending market on April 18, 2026. Aave emphasized that user funds remained secure throughout this process, while its automated insurance mechanism, Umbrella, was not activated.
In an announcement shared on X, Aave characterized the liquidation as a “critical step” in its collective recovery mission. The liquidated assets, approximately 13,000 Ether valued at nearly $30.2 million, have been transferred to the Recovery Guardian, a multisignature wallet overseen by DeFi United. Aave's proactive stance not only aids in covering the losses but also restores confidence in the DeFi market.
However, obstacles remain. Pinakiewicz noted that an additional 30,765 ETH remains in legal limbo after a restraining notice was filed by the law firm Gerstein Harrow LLP, aimed at preventing Arbitrum DAO from redistributing the frozen assets. In response, Aave has filed an emergency motion to vacate this restraining order, asserting the importance of these funds in achieving recovery.
As the situation evolves, Arbitrum DAO members are actively voting on a proposal to release the frozen ETH to the DeFi United fund, with an overwhelming majority currently in favor—over 90%. The voting process is set to conclude on Friday, potentially paving the way for further recovery.
Beyond the liquidation efforts, DeFi United is also awaiting commitments from key stablecoin issuers such as Circle, Ethena, and the Kraken-developed Ethereum layer 2 known as Ink. Pinakiewicz remarked that securing these partnerships is essential to “get it over the line and plug the hole” created by the exploit.
Aave endured a profound impact from the Kelp DAO hack, witnessing its total value locked plunge by nearly $12 billion shortly after the breach. However, data from DefiLlama indicates a recent stabilization, with Aave’s total value locked increasing back above the $15 billion mark, signaling a potential recovery in investor confidence.
As the DeFi landscape grapples with the ramifications of the Kelp DAO incident, Aave's actions represent a pivotal moment in the battle to restore normalcy and trust in decentralized finance operations.