Aave Liquidates Kelp DAO Hacker’s rsETH Collateral, $30M Recovered
Aave Labs has successfully liquidated the Kelp DAO hacker’s remaining rsETH collateral across Ethereum and Arbitrum, recovering approximately 13,000 ETH worth $30.2 million. This liquidation represents a significant milestone in the DeFi United recovery effort aimed at restoring the backing for Kelp DAO’s restaked ETH (rsETH) token and compensating affected users.
The Kelp DAO exploit on April 18, which involved the minting of unbacked rsETH tokens, resulted in $293 million in losses. The attacker used these tokens as collateral on Aave to borrow wrapped Ether (wETH), creating over $190 million in bad debt and triggering a wave of withdrawals. Aave’s total value locked (TVL) plummeted by $12 billion in the days following the breach, though data from DeFiLlama indicates that Aave’s TVL has since stabilized, recovering to over $15 billion as of May 6.
DeFi United, which is spearheading the recovery of rsETH, has now closed 90% of the gap required to fully back the token, according to Thaddeus Pinakiewicz, VP of Galaxy Digital’s research team. However, an additional 30,765 ETH remains frozen by Arbitrum DAO, currently subject to legal proceedings. Aave has filed an emergency motion to lift a restraining notice placed on these funds by the U.S. law firm Gerstein Harrow LLP. Meanwhile, Arbitrum DAO’s governance vote on whether to release the frozen ETH is ongoing, with over 90% of participants reportedly in favor. Voting is set to conclude on May 8.
Market Context: rsETH and DeFi Recovery
rsETH, a liquid restaking token launched by Kelp DAO in 2023, allows users to restake Ethereum or liquid staking tokens (LSTs) and earn additional rewards while maintaining liquidity. The recent exploit has shaken confidence in the token and the broader DeFi ecosystem.
As of May 7, rsETH is trading at $2,415.32, reflecting a 3.18% decline over the past 24 hours. Its market cap stands at $1.39 billion, underscoring the token’s importance in the DeFi space despite the exploit’s fallout. Aave’s swift liquidation of the hacker’s collateral is seen as a critical step toward restoring trust in both rsETH and the wider DeFi market.
Pinakiewicz highlighted that DeFi United is seeking commitments from key stablecoin issuers, including Circle, Ethena, and Frax, as well as Kraken’s Ethereum Layer 2 project, Ink, to finalize the recovery plan. "These commitments are essential to plug the remaining hole and fully restore rsETH’s backing," he said.
Aave’s Resilience Post-Exploit
While the Kelp DAO exploit significantly impacted Aave, the protocol’s insurance mechanism, Umbrella, was not engaged during the liquidation process. Aave has reassured users that no direct funds were affected, a move likely aimed at maintaining user confidence.
Following the exploit, Aave has taken a proactive approach to mitigate further risks and stabilize its platform. Net outflows have eased in recent weeks, and the protocol’s TVL has rebounded from a local low of $14.2 billion to over $15 billion.
The recovery of $30 million from the hacker’s collateral provides a financial boost to DeFi United’s efforts and signals a turning point in the aftermath of one of 2026’s most significant crypto exploits. However, the legal and governance hurdles surrounding the frozen ETH on Arbitrum could still pose delays to a full recovery.
All eyes are now on Arbitrum DAO’s final vote and the outcome of Aave’s emergency court motion. A resolution on these fronts could pave the way for a more robust recovery of rsETH and potentially restore market confidence in liquid restaking tokens.