Aave has restored full wrapped ether borrowing on Aave V3 across six networks, ending a month-long emergency freeze imposed after attackers drained roughly $230 million from the protocol in April. Founder Stani Kulechov announced the change on Sunday, restoring loan-to-value ratios for WETH collateral on Aave V3 Ethereum Core, Ethereum Prime, Arbitrum, Base, Mantle, and Linea. Users can again borrow against WETH and execute collateral or debt swaps. The decision marks the clearest sign yet that the systemic risk from April’s Kelp DAO bridge exploit has eased, though legal battles over recovered funds remain unresolved.
Wrapped ether, or WETH, is an ERC-20 version of ether that lets the asset trade and be used as collateral inside Ethereum-based smart contracts. It serves as a core financing asset across DeFi, and disabling its borrowing function in April constrained leverage and trapped capital across multiple networks.
Key takeaways
- Aave restored WETH borrowing on six Aave V3 markets: Ethereum Core, Ethereum Prime, Arbitrum, Base, Mantle, and Linea.
- The freeze followed an April 18 exploit on Kelp DAO’s LayerZero bridge that produced roughly $292 million in unbacked rsETH and drained about $230 million in WETH from Aave.
- Aave’s total value locked fell from nearly $23.5 billion in March to about $14.8 billion as of Monday, per DefiLlama data.
- A separate court fight over 30,765 ETH (about $71 million) tied to the exploit is still active in a Manhattan federal court.
Published: May 18, 2026 12:00 UTC
What triggered the freeze
The emergency restrictions traced back to an April 18 attack on Kelp DAO, the issuer of rsETH, a liquid restaking token tied to ether. Attackers exploited a misconfiguration in Kelp DAO’s LayerZero-powered cross-chain bridge and minted approximately 116,500 unbacked rsETH tokens. They then used the fake collateral on Aave V3 to borrow large amounts of WETH, draining about $230 million in ether and generating roughly $195 million in bad debt on the lending protocol, according to crypto.news.
Aave responded within hours by freezing WETH, rsETH, and wrsETH reserves and tightening loan-to-value ratios across affected markets. Governance participants later approved a proposal to remove the WETH freeze after recovery efforts progressed without additional user risk.
What the restoration means for DeFi liquidity
WETH freezes are not routine. The asset acts as the base collateral for most leveraged positions on Aave, and the April lockdown drained more than $8 billion from the protocol’s total value locked. DefiLlama shows Aave TVL at roughly $14.8 billion on Monday, compared with nearly $23.5 billion in March, a decline of about 37% since the exploit.
Restoring WETH borrowing reopens leverage strategies, basis trades, and routine collateral swaps that had been pushed to other venues. It also signals to allocators that Aave’s risk team believes contagion from the rsETH incident is contained. Earlier stages of the recovery included restoring backing for rsETH with ether recovered after the exploit, reopening user withdrawals, and coordinating token support from protocols participating in the DeFi United recovery initiative.
The court fight over $71 million in frozen ether
While protocol-level recovery is moving ahead, a legal dispute over 30,765 ETH frozen on Arbitrum remains active. The funds, worth about $71 million when court documents were filed, sit in an Arbitrum Security Council wallet after investigators tied them to wallets linked to the exploit on April 21.
A binding Arbitrum Improvement Proposal opened for voting on May 15, asking governance to transfer the ether to an address controlled by Aave LLC. Judge Margaret Garnett of the Manhattan federal court modified an earlier restraining notice on May 9, allowing the transfer to proceed while protecting governance voters from personal liability tied to the order.
Claims over the assets are not settled. Gerstein Harrow LLP, which represents families pursuing unpaid terrorism judgments against North Korea, argued in court filings that the ether could constitute property linked to the Lazarus Group, since blockchain analytics firms attributed the exploit to North Korean state-backed actors. No court has formally ruled on that attribution.
Kelp DAO consolidates its bridge footprint
Kelp DAO is moving on its own track. On Sunday, the protocol said it will discontinue rsETH bridging support on Optimism, HyperEVM, Unichain, Avalanche, and MegaETH after June 15, calling it a consolidation effort tied to security and integration priorities. Users seeking to recover funds after the deadline will face a 100 USDC fee per address.
The team has also migrated rsETH to Chainlink’s Cross-Chain Interoperability Protocol after publicly blaming LayerZero’s cross-chain system for the bridge misconfiguration that enabled April’s attack. The decision aligns Kelp DAO with a broader exodus of restaking and bitcoin liquidity protocols moving away from LayerZero in recent weeks.
FAQ
What is wrapped ether (WETH) and why does it matter on Aave?
WETH is an ERC-20 version of ether that can be used as collateral inside smart contracts. On Aave, it is a primary borrowing and collateral asset that anchors leverage and basis trades. Freezing WETH borrowing in April cut off a major channel for capital efficiency across six networks.
Has Aave recovered the $230 million drained in the exploit?
Most of it. According to coverage of the recovery, more than 95% of the unbacked rsETH has been recovered, and the DeFi United coalition agreed to cover the remaining shortfall. A separate $71 million in frozen ether linked to the attacker remains tied up in a Manhattan federal court case.
Why is the court attribution to North Korea significant?
If a court formally classifies the ether as property linked to the Lazarus Group, families holding unpaid terrorism judgments against North Korea could seek to claim it. That would put recovered funds out of reach for affected Aave users, who Kulechov has argued are the rightful owners.
