Aave DAO Votes to Liquidate Frozen ETH From KelpDAO Hack in Coordinated Recovery Push

TL;DR:

• Aave DAO voted with over 90% approval to liquidate the frozen funds from the KelpDAO exploit worth $292 million.
• Arbitrum authorized the release of 30,765.67 ETH held by the Arbitrum Security Council to compensate rsETH holders.
• Total loans on Aave dropped 35% over the last 30 days, while stablecoin liquidity fell 46.3% in the same period.

Aave executed the liquidation of the hacker’s wallets responsible for the KelpDAO exploit. The operation received the support of more than 90% of the protocol’s representatives. A total of 1,600 addresses, backed by 190 million ARB tokens, voted in favor of unfreezing the funds during the week-long deliberation in Arbitrum’s governance process.

The Arbitrum Security Council had partially intercepted the attacker’s transactions following the exploit, which compromised assets worth approximately $292 million. The approval of the Arbitrum Governance Process allowed 30,765.67 frozen ETH to be released as part of a coordinated remediation plan. The goal is to fully restore the ETH backing of the wrapped token rsETH to compensate all its holders.

Aave: The Road to Restitution

The protocol worked alongside KelpDAO, the LayerZero, EtherFi, Compound teams, and other counterparts to maximize fund recovery. Stani Kulechov, founder of the network, announced that additional measures will be executed to compensate bad loans and restore the protocol’s health. Aave estimated that bad loans on Arbitrum range between $170 and $230 million.

The protocol’s internal protection mechanisms also acted during the incident. The hacker attempted to take out additional loans using rsETH as collateral, but when the token’s risk exceeded a certain threshold, the positions were automatically liquidated. For its part, KelpDAO decided to migrate its cross-chain infrastructure to Chainlink’s CCIP ecosystem, after indicating that LayerZero’s tools were one of the determining factors behind the exploit.

Gradual Normalization in Lending Vaults

Aave stabilized its total value locked above $15 billion following an initial outflow of around $10 billion. Utilization rates across the main vaults began to normalize: the WETH vault operates at 93%, while USDT and USDC sit at 92% and 91% respectively. The average lending rate stabilized at 2.76% and the borrowing rate at 4.08%.

However, overall lending activity still reflects the impact of the exploit. Total loans fell 35% over the last 30 days, accompanied by an additional 46.3% decline in stablecoin liquidity.