Onchain lending platform Aave has liquidated the Kelp DAO attacker’s remaining rsETH positions as part of a previously announced recovery plan, according to an announcement on Wednesday. The liquidated collateral will be moved into the Recovery Guardian, a designated multisig managed by the DeFi United initiative, which is working to restore the rsETH backing and compensate affected users.
Background: The April 28 Exploit
On April 28, an attacker with suspected connections to North Korea manipulated Kelp DAO’s LayerZero-powered bridge to fraudulently mint 116,500 unbacked rsETH on Ethereum. These assets were then deployed in various onchain lending protocols, including Aave and Compound, to be exchanged for ETH. The exploit resulted in a $292 million loss.
Recovery Effort and Community Response
This liquidation represents one of the final steps in a community-wide effort to undo the damage. Contributions to DeFi United have exceeded $320 million, and the community has collaborated on ways to freeze addresses, recover stolen funds, and return to normalcy. The Arbitrum Security Council voted to freeze funds connected to the attack, with plans to return them to DeFi United.
Technical Process: Oracle Manipulation and Governance
Aave previously noted that its liquidations, which occurred on its Ethereum and Arbitrum deployments, required a governance process. In particular, Aave voted to temporarily manipulate the rsETH oracle price to generate a deficit in the attacker’s fraudulent position.
According to Aave’s announcement outlining the recovery plan: “All such adjustments will be fully reverted upon completion of the liquidation process, with no persistent configuration changes to the Aave protocol expected as a result of the governance proposal. Once the collateral is secured, the rsETH price oracle will be restored.”
Legal Complications
At present, the frozen funds are tied up in a separate lawsuit where plaintiffs are trying to claim them as restitution tied to terrorism-related judgments against North Korea.
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