Aave has completed the liquidation of the remaining rsETH positions tied to the KelpDAO hacker across Ethereum and Arbitrum, marking a major step in the protocol’s recovery effort after the $293 million exploit that rocked DeFi markets in April. Thaddeus Pinakiewicz, vice president of research at Galaxy Digital, said the current rsETH supply remains about 10% below the Ethereum backing needed for full recovery. While the latest liquidations reduced part of the deficit, several unresolved issues continue to weigh on the protocol. The exploit occurred on April 18, when the attacker used stolen rsETH tokens as collateral on Aave to borrow Wrapped Ether. The attack left the lending platform with more than $190 million in bad debt and triggered a sharp outflow of funds from Aave’s markets. The recovered assets were transferred to the Recovery Guardian wallet, a multisignature address managed by DeFi United, the coalition coordinating recovery efforts. The group described the liquidation as a “critical step” in stabilizing the protocol. DeFi United also confirmed that user deposits were never directly affected and that Aave’s Umbrella protection system, designed to absorb bad debt automatically, was not activated during the crisis. Legal Battle Over Frozen ETH Could Delay Full Recovery On April 28, Aave reported that liquidating collateral positions on Ethereum and Arbitrum would release around 13,000 ETH, worth approximately $30.2 million at current market prices. However, a much larger block of 30,765 ETH remains frozen by the Arbitrum DAO, creating another obstacle in the recovery process. The funds became tied up in legal proceedings after U.S. law firm Gerstein Harrow LLP filed an injunction seeking to block redistribution of the assets. The filing cited claims connected to clients allegedly affected by North Korea-linked entities. In response, Aave filed an emergency motion requesting the court lift restrictions on the frozen ETH. Meanwhile, voting within the Arbitrum DAO strongly favors releasing the assets to the DeFi United recovery fund. More than 90% of participating voters currently support the proposal ahead of Friday’s final vote. Stablecoin Issuers Now Hold Key Role in Aave Recovery To fully close the remaining gap, DeFi United is seeking additional commitments from stablecoin issuers Circle, Ethena, and Frax, alongside support from Ink, Kraken’s Ethereum-based layer-2 network. According to Pinakiewicz, these contributions could help “bridge the remaining shortfall” and complete the recapitalization effort. The KelpDAO exploit became the largest cryptocurrency hack of 2026 and exposed how deeply interconnected modern DeFi systems have become. According to DefiLlama , Aave’s total value locked (TVL) plunged by nearly $12 billion during the week following the exploit. Still, recent data suggests confidence may slowly be returning to the platform. Aave TVL Climbs Back Above $15 Billion The pace of withdrawals from Aave’s lending markets has slowed significantly over the past two weeks. After falling to a local low near $14.2 billion on April 26, Aave’s TVL has now climbed back above $15 billion. The rebound signals improving market confidence as traders watch the outcome of the Arbitrum DAO vote, the ongoing legal dispute over frozen assets, and whether stablecoin partners step in to finalize the recovery package. The crisis has also highlighted a broader shift across decentralized finance. Unlike earlier DeFi failures such as the 2016 DAO hack, which required a controversial Ethereum hard fork, Aave’s recovery effort relies on coordinated action between decentralized communities, legal institutions, and centralized stablecoin issuers. That growing overlap between DeFi and traditional institutions may become one of the defining trends shaping the industry’s future crisis responses.