Aave Restores WETH Borrowing as rsETH Recovery Plan Advances

TLDR

• Aave restored WETH loan-to-value ratios to pre-incident levels.
• WETH borrowing is live again across Ethereum Core, Ethereum Prime, Arbitrum, Base, Mantle and Linea.
• The freeze followed the April Kelp DAO rsETH bridge exploit.
• Aave’s TVL remains near $14.8B, down from about $23.5B in March.
• Kelp will sunset rsETH bridging on several networks after June 15.

Aave has restored wrapped Ether borrowing across affected markets after completing another step in the rsETH recovery plan linked to the Kelp DAO exploit.

Aave founder Stani Kulechov said WETH loan-to-value ratios have returned to pre-incident levels across Aave V3 Ethereum Core, Ethereum Prime, Arbitrum, Base, Mantle and Linea. The change means users can again borrow against WETH, including through collateral swaps and debt swaps.

The protocol had temporarily restricted WETH markets after the April Kelp DAO incident as a safety measure. Aave also froze rsETH and wrsETH reserves while teams assessed exposure from the exploit and worked through the technical recovery process.

Aave said the latest move follows progress in restoring rsETH backing and reopening withdrawals. A governance proposal that passed on Saturday said the WETH freeze could be lifted without weakening user protection.

Aave Restores WETH LTVs Across V3 Markets

The restoration of WETH LTVs marks the final part of Phase II of the rsETH technical recovery plan. Loan-to-value ratios determine how much users can borrow against collateral, making them central to lending and leveraged strategies on Aave.

With WETH markets back at pre-incident settings, affected Aave V3 deployments are returning to normal borrowing conditions. This includes Ethereum Core, Ethereum Prime and several layer-2 networks where risk parameters had been adjusted after the exploit.

The move follows earlier recovery steps that included restoring rsETH backing and allowing withdrawals. Aave and Kelp have also worked with other DeFi participants to refill affected reserves and reduce disruption for users.

The temporary market restrictions were introduced after attackers used stolen rsETH as collateral to borrow WETH on Aave V3. The response was aimed at limiting further exposure while developers and governance participants reviewed the situation.

Kelp DAO Recovery Continues After Bridge Exploit

The recovery process began after hackers stole 116,500 Kelp DAO Restaked Ether tokens on April 18 from a LayerZero-powered bridge. The attackers then used those assets as collateral on Aave V3 to borrow wrapped Ether, leaving about $195 million in bad debt on Aave, according to the reported figures.

The exploit has been linked by some analysts to actors believed to be connected with North Korean state-backed activity. The incident also increased scrutiny of cross-chain bridge systems and liquid restaking assets used across lending markets.

Kelp has reopened rsETH withdrawals and continued restoring bridge functionality as part of its recovery plan. The protocol has said rsETH remains backed across mainnet and layer-2 networks as remaining tranches are sent to refill the lockbox.

Kelp is also consolidating supported networks for rsETH. The protocol said it will sunset rsETH bridging on Optimism, HyperEVM, Unichain, Avalanche and MegaETH after June 15. After that date, recovery of funds will cost 100 USDC per address.

Earlier this month, Kelp moved rsETH to Chainlink oracle infrastructure while continuing to attribute the attack to its previous LayerZero-based cross-chain setup.

Aave TVL Remains Below March Levels

Aave’s total value locked remains below levels seen before the exploit. DefiLlama data cited in market reports showed TVL near $14.8 billion on Monday, down from about $23.5 billion in March.

Tom Wan, head of data at Entropy Advisors, said wrapped stETH and wrapped Ether deposits fell after the hack. He noted that wstETH deposits were down about $1.2 billion, while weETH deposits were down about $1.76 billion.

At the same time, unused Ether liquidity has increased. ETH utilization has dropped below 90%, and the annualized borrowing rate has fallen to about 1.9%.

Lower borrowing costs may make Ether-based looping strategies profitable again for some traders. These strategies typically involve depositing liquid staking or restaking assets, borrowing ETH, and repeating the process to increase yield exposure.

The main question for Aave is whether capital returns to these strategies or stays on the sidelines after the exploit. Some users may also move liquidity to competing lending markets such as Spark or Morpho.

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