Aave Labs wants to significantly change how it assesses and records collateral assets following the nearly catastrophic KelpDAO incident earlier this May that blew a multi-hundred-million-dollar hole in its namesake lending market.
Key Takeaways
- Aave has liquidated the remaining rsETH positions of the Kelp DAO attacker, marking a major development in its recovery plan.
- The protocol is now only missing 10% of the necessary amount to fully restore the ETH reserve and compensate users who were affected by the attack.
- Aave’s TVL has recorded significant stabilization, increasing back to $15 billion after falling to $14.2 billion.
Aave Reduces Its Losses After Liquidating the Hacker
Aave Labs announced on May 6 the liquidation of the KelpDAO exploiter’s rsETH positions on Ethereum and Arbitrum. This decisive development represents a turning point in the recovery executed by “DeFi United,” the initiative launched after the $293 million exploit that occurred on April 18.
The liquidated collateral was transferred to a safe multisignature wallet managed by the recovery team. Thaddeus Pinakiewicz from Galaxy Digital said that the protocol is now only missing 10% of the Ether needed to fully fund the restoration of the rsETH token. This rapid and impressive progress shows the protocol’s ability to reorganize in the face of challenges.
This incident triggered a domino effect. The culprit had used the stolen rsETH as collateral to borrow wrapped Ether, generating over $190 million in unrecoverable debts and causing massive withdrawals. Aave saw its TVL drop by $12 billion in just one week.
The company assured that user funds remained intact and that the “Umbrella” insurance fund, an automated protection mechanism, was not activated.
Continuing Challenges and Early Signs of Stabilization
Despite these advances, Aave still faces significant legal problems. Arbitrum DAO is freezing an additional 30,765 ETH, but a U.S. law firm has filed an injunction to block its redistribution. In turn, Aave filed an emergency motion to overturn this. Meanwhile, Arbitrum DAO is currently voting to unlock the funds: more than 90% of voters support the proposal, with a verdict expected on May 8.
In terms of liquidity, the data shows initial stabilization. The protocol’s TVL has risen above $15 billion, reversing the downward trend of the previous weeks. This rebound suggests that users are regaining confidence.
Aave does not emerge unscathed from this incident, but it demonstrates impressive resilience. The liquidation of what the hacker stole and the gradual stabilization of the TVL mark the beginning of a rebirth. The challenge now is to turn this recovery into a sustainable restoration of trust and confidence.
