Aave DAO votes to liquidate 30,765.67 ETH to restore rsETH

Aave DAO voted in early May to liquidate 30,765.67 ETH that had been frozen after the KelpDAO exploit and to release the funds to a coordinated remediation effort to restore rsETH’s full ETH backing. The governance vote passed with more than 90% support, with roughly 1,600 addresses representing about 190 million ARB tokens participating.

The frozen ETH was held under the control of the Arbitrum Security Council after funds linked to the KelpDAO hack moved onto Arbitrum. Arbitrum Governance requested approval to release the 30,765.67 ETH so those assets could be used in the remediation. Sources close to the process say the council has only partially intercepted the hacker’s transactions to date.

Aave said it worked with KelpDAO, the LayerZero team, EtherFi, Compound and other counterparties on a recovery plan designed to return value to rsETH holders. The protocol reported that the attacker’s positions have been liquidated on both Ethereum and Arbitrum. Aave also relied on internal protection mechanisms that automatically triggered liquidations when rsETH’s risk profile crossed set thresholds.

Aave estimated the resulting bad loans on Arbitrum at between $170 million and $230 million. KelpDAO announced it will move its cross-chain infrastructure to Chainlink’s Cross-Chain Interoperability Protocol and has previously pointed to LayerZero cross-chain tools as a primary factor in the $292 million exploit that affected rsETH’s ETH backing.

The exploit and remediation prompted withdrawals and rebalancing across Aave. Total value locked stabilized above $15 billion following an initial outflow of about $10 billion. Lending activity fell roughly 35% over the past 30 days, and stablecoin liquidity declined about 46.3% over the same period. Utilization rates for major vaults were reported above 90%: WETH at 93%+, USDT at 92% and USDC at 91%.

Average lending and borrowing rates on Aave returned to lower levels, with the average lending rate near 2.76% and the borrowing rate near 4.08%, though rates vary by vault. The AAVE governance token traded near $94 after the shock. The protocol holds more than $538 million in its GHO stablecoin supply, with no recent burns recorded.

Aave founder Stani Kulechov wrote on social media, “The attacker’s position has now been liquidated on both Ethereum and Arbitrum. This was an incredible technical effort by all contributors involved,” and added that additional steps are planned to address remaining losses and compensate affected loans.