Aave moves into phase two of its rsETH recovery after liquidations, DAO approvals, and court-backed ETH transfer plans.
Progress in Aave’s rsETH recovery effort continued this week following the liquidation of attacker-linked positions. Attention is now shifting toward restoring rsETH backing and reopening affected markets across Ethereum and Arbitrum. Support from multiple DAO governance votes has strengthened the recovery effort, even as legal disputes over frozen funds continue in the background.
Aave Liquidates Exploit-Linked Positions as rsETH Recovery Progresses
In an X post published on May 9, Aave shared fresh details on the rsETH recovery process. The update followed the liquidation of the attacker’s positions across Aave V3 on Ethereum Core and Arbitrum.
According to the protocol, eight identified positions tied to the exploit were liquidated on May 6. Recovered rsETH collateral were transferred to the Recovery Guardian under a previously approved governance proposal.
Aave also stated that regular users and Umbrella stakers were not affected during the liquidations. Focus has now shifted toward restoring rsETH backing and returning affected markets to normal conditions.
Momentum around the recovery effort also grew after governance approvals from Mantle DAO and Arbitrum DAO. Mantle DAO passed a proposal confirming its participation in the DeFi United coalition with strong community backing. Meanwhile, the Arbitrum DAO approved a proposal to return $71 million in recovered ETH linked to the exploit.
Arbitrum’s Security Council had earlier immobilized the ETH after recovering it from the attacker. Those funds are expected to support impacted Aave users as part of the broader recovery process.
Court Approves Arbitrum DAO Vote to Transfer Recovered ETH to Aave LLC
Fresh legal complications surfaced on May 1 after plaintiffs holding judgments against North Korea served a restraining notice on Arbitrum DAO. The notice sought to block access to the recovered ETH tied to the exploit recovery effort.
Aave LLC filed an emergency motion seeking to have the restriction removed. A hearing took place on May 6, followed by additional filings from both parties over control of the disputed assets.
Court proceedings produced a temporary breakthrough for Aave. A judge approved a proposal allowing an onchain Arbitrum DAO vote to transfer the immobilized ETH to Aave LLC.
Under the ruling, the restraining notice would attach to Aave LLC after the transfer instead of remaining tied to Arbitrum DAO. While legal proceedings continue, borrowed funds will temporarily cover any shortfalls until the recovered ETH is returned to affected users.
Next steps in the recovery plan target the inflated rsETH supply created during the exploit. On Arbitrum, liquidated rsETH will be burned during the recovery process. Kelp will also retire the related LayerZero packet on Ethereum to prevent any additional rsETH minting associated with the exploit.