Aave Recovery Plan Advances After rsETH Liquidations

• Aave liquidated exploit-linked positions and transferred recovered rsETH under approved governance proposals.
• Court ruling supports transfer of recovered ETH as DAOs coordinate broader recovery and restitution efforts.
• Next recovery phase focuses on restoring rsETH backing, reopening withdrawals, and normalizing market settings.

Aave confirmed new progress in its rsETH recovery process after liquidating positions tied to a thief across Ethereum and Arbitrum markets. According to Aave, the liquidations occurred on May 6 under an approved governance proposal, while partner DAOs and legal actions supported efforts to recover affected ETH and restore rsETH backing after the exploit disrupted market conditions.

Liquidations and DAO Votes Move Recovery Forward

According to Aave, eight identified positions on Aave V3 Ethereum Core and Arbitrum were liquidated on May 6. The recovered rsETH collateral then moved to the Recovery Guardian under an earlier Aave Improvement Proposal.

Aave stated the process did not impact other users or Umbrella stakers. Meanwhile, Mantle DAO approved its participation in the DeFi United recovery initiative through a governance proposal.

At the same time, Arbitrum DAO advanced a separate proposal involving $71 million in recovered ETH. The proposal seeks to return the funds to affected Aave protocol users.

However, legal complications soon followed. On May 1, plaintiffs holding judgments against North Korea served a restraining notice on Arbitrum DAO concerning the immobilized ETH.

Aave LLC then filed an emergency motion asking the court to vacate the notice. A hearing later took place on May 6.

Court Order Supports Recovery Process

According to Aave, both parties submitted letters to the judge following the hearing. Aave LLC requested the immobilized ETH and restraining order transfer directly to the company.

The judge later approved that proposal. The ruling authorized an onchain Arbitrum DAO vote to transfer the ETH to Aave LLC.

While the court deliberates further, Aave said separate funds may temporarily cover any remaining difference. The company added that recovery work continues alongside the legal process.

Next Steps Focus on rsETH Supply

The next phase targets restoration of rsETH backing and normalization of affected markets. On Arbitrum, liquidated rsETH will be burned to reduce the inflated supply tied to the exploit.

Kelp will also retire the pending LayerZero packet on Ethereum to prevent additional rsETH minting. Meanwhile, seized rsETH on Ethereum will move to the bridge lockbox.

Aave said committed ETH from the broader DeFi United coalition will help restore the lockbox backing. Afterward, the bridge may resume normal operations and rsETH withdrawals could reopen.

The protocol also plans to reverse temporary market configurations introduced during the liquidation process. Aave added that WETH loan-to-value settings on Ethereum Core may soon return to normal levels.