Aave's effort to recover from a $190 million bad debt event is now approximately 90% complete after the protocol liquidated the remaining collateral from the April 18 Kelp DAO exploit, a move that clears the hacker's positions on Ethereum and Arbitrum.
"The Aave bad debt recovery plan, coordinated under the DeFi United banner, is now roughly 90% complete," Thaddeus Pinakiewicz, vice president of research at Galaxy Digital, said. He noted, however, that commitments from several stablecoin issuers are still needed to "get it over the line and plug the hole."
The liquidation freed up 13,000 Ether, worth about $30.2 million, which has been transferred to a multisignature wallet managed by DeFi United. The bad debt originated when an attacker deposited stolen restaked ETH (rsETH) from Kelp DAO as collateral on Aave and borrowed other assets. The subsequent collapse of rsETH's value left Aave with over $190 million in uncollateralized debt and triggered a nearly $12 billion drop in its total value locked (TVL) as users withdrew funds. Data from DefiLlama shows Aave's TVL has since stabilized, climbing from a low of $14.2 billion on April 26 to over $15 billion.
The final 10% of the recovery faces a significant legal obstacle. A U.S. law firm, Gerstein Harrow LLP, filed a restraining notice that has frozen 30,765 ETH on the Arbitrum network, preventing its transfer to the DeFi United recovery fund. Aave has filed an emergency motion to vacate the order, while Arbitrum DAO members are voting on a proposal to release the funds, with over 90% in favor. The vote is set to close on Friday. DeFi United is also awaiting commitments from stablecoin issuers Circle, Ethena, and Frax, as well as the Kraken-built layer-2 network Ink, to fully restore the rsETH backing and compensate affected users.
This article is for informational purposes only and does not constitute investment advice.
