What to Know:
- Aave liquidations helped recover collateral tied to the Kelp DAO exploit.
- The DeFi United recovery fund is now only 10% short of restoring rsETH backing.
- Aave’s total value locked has climbed back above $15 billion after heavy withdrawals.
The Aave liquidations provide market stabilization, which follows the Kelp DAO exploit that caused severe damage to decentralized finance operations and resulted in liquidity loss and substantial uncollectable debts for lending services.
Galaxy Digital’s vice president of research, Thaddeus Pinakiewicz, said the recovery effort is now close to the finish line. According to him, DeFi United is only about 10% short of the Ether needed to fully restore the backing of Kelp DAO’s restaked Ether token, rsETH.
Aave liquidations made the recovery possible after Aave Labs cleared the attacker’s remaining rsETH positions on Ethereum and Arbitrum.
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Aave Liquidations Push Recovery Forward
Aave called the move a “critical step” in the DeFi United recovery plan. The liquidated collateral tied to the $293 million exploit was transferred to Recovery Guardian, a multisignature wallet managed by DeFi United.
The attack on April 18 became one of the biggest crypto hacks of 2026. The hacker used stolen rsETH tokens as collateral on Aave’s lending platform and borrowed wrapped Ether against them. The move left more than $190 million in bad debt and triggered billions of dollars in liquidity disruption across DeFi.
Aave said its users were not harmed by the liquidations. The protocol also confirmed that Umbrella, its insurance mechanism designed to absorb bad debt, was not activated during the process.
Earlier estimates from Aave showed that clearing the hacker’s collateral on Ethereum and Arbitrum would release around 13,000 ETH, worth nearly $30.2 million at current market prices.
Aave Liquidations Face Legal and Governance Hurdles
The recovery effort is not complete. Pinakiewicz noted that another 30,765 ETH remains frozen by Arbitrum DAO and is now caught in legal uncertainty.
US law firm Gerstein Harrow LLP filed a restraining notice to stop the redistribution of the frozen Ether. In response, Aave submitted an emergency motion seeking to remove the restriction.
Meanwhile, Arbitrum DAO members are voting on whether to release the frozen ETH to DeFi United. More than 90% of voters currently support the proposal.
Despite the crisis, signs of recovery are emerging. DefiLlama data shows Aave’s total value locked rebounded from $14.2 billion on April 26 to above $15 billion, suggesting that the worst of the panic may be fading.
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