Aave Rolled Ether Borrowing Restores Kelp DAO Hack
As Kelp DAO's exploit recovery plan continues, Aave users can now borrow against Ether wrapped in the decentralized finance protocol.
Aave founder Stany Kulekov said on XPost Sunday that the protocol has restored the loan-to-value (LTV) ratio for Encrypted Ether (WETH) to pre-incident levels on all affected networks: Aave V3 Ethereum Core, Ethereum Prime, Arbitrum, Base, Mantle and Linea.
“The next step in the rsETH technical recovery plan has been completed by restoring WETH LTVs to their pre-event levels on all affected networks. Users can now borrow WETH on Aave again, including through collateral and debt swaps,” Kulechov said.
The temporary freeze on WETH was a precautionary security measure issued in response to exploitation, alongside freezes on rsETH and wrsETH reserves, Aave said. However, the administration's proposal on Saturday said the freeze “can now be lifted without compromising consumer protection” given the progress seen in recovering the protocol.
The development marks the final phase of “Phase II” of the rETH recovery plan, which will allow rETH support to be restored and withdrawn, using Ether frozen after the exploit and tokens issued from the DeFi United consortium.
Source: Stan Kulekov
Total value locked on Aave down after kelp exploitation
Hackers believed to have ties to North Korean-backed actors stole 116,500 Kelp DAO Restaked Ether tokens from a bridge running Kelp DAO LayerZero on April 18, then wrapped and used the ether as collateral to borrow against Ave V3, resulting in almost $195 million in debt to Ave V3.
The total value locked (TVL) on Aave dropped by more than $8 billion following the exploit, Defillama said. As of Monday, its TVL is about $14.8 billion, down from $23.5 billion in March.
Tom Wan, chief information officer at Entropy Advisors, a consulting firm partnered with Arbitrum Dao, said that since the hack, rolled-up stETH and sealed ether deposits have fallen.
However, there is now a lot of unused ether liquidity in the system, and the annual loan rate has dropped to 1.9%, which can bring back traders who are interested in using ether production strategies.
Ether usage has dropped below 90 percent. Source: Tom Wan
“ETH usage per loan APY is now down 1.9% below 90%. Since the rsETH LZ hack, wstETH and weETH deposits have dropped by $1.2B and $1.76B, respectively,” Wan said.
“With wstETH / weETH the ETH loops will now return to profitability, the question is whether the demand for the ETH loop will return or if the capital will stay on the sidelines / go to Spark / Morpho,” he said.
Kelp sunset rsETH bridge on some networks
Meanwhile, Kelp DAO is in the process of its own recovery efforts. On Sunday, the protocol said that after June 15, the rETH bridge in select networks, including Sunset, Optimism, HyperEVM, Unichain, Avalanche and MegaETH, “is strengthening the highest security standards for rsETH based on usage and integrations by integrating our supported networks.”
Related: Aave files emergency motion to lift ban on frozen ETH
After the deadline, retrieving funds will cost 100 USD per address, Kelp said.
Earlier this month, Kelp DAO moved its recovery token, rsETH, to the Chainlink oracle platform, continuing to blame the attack on LayerZero's cross-chain infrastructure, its previous provider.
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