Aave Recovers Exploited rsETH Funds as $71M ETH Return Moves Forward

Aave says its rsETH recovery process has entered Phase II after major progress in resolving the exploit tied to Aave V3 on Ethereum and Arbitrum.

According to the protocol, the attacker’s eight identified Aave V3 positions were successfully liquidated on May 6, with the recovered rsETH collateral transferred to the Recovery Guardian under an Aave DAO-approved proposal.

At the same time, governance proposals backed by both Mantle DAO and Arbitrum DAO were passed to support the broader DeFi United recovery effort.

Aave noted that normal users and Umbrella stakers were not impacted during the liquidation process.

$71 Million Recovery Plan Faces Legal Complications

A major part of the recovery effort involves the $71 million worth of ETH recovered by Arbitrum’s Security Council.

The Arbitrum DAO voted to return the recovered funds to Aave users, but the process was temporarily disrupted after plaintiffs holding judgments against North Korea issued a restraining notice targeting the frozen ETH.

In response, Aave LLC filed an emergency motion asking the court to vacate the notice. Following a May 6 hearing, the judge approved a proposal allowing the immobilized ETH to be transferred to Aave LLC, with the restraining order shifting alongside the funds.

As the legal process continues, Aave said separate borrowed funds will temporarily cover the shortfall until the restricted ETH is officially returned to users.

Aave Plans to Burn rsETH and Restore Market Operations

The next phase of the recovery focuses on restoring rsETH backing and reopening normal bridge activity.

On Arbitrum, the liquidated rsETH will be burned to remove the inflated supply created during the exploit. Kelp will also retire the related LayerZero packet on Ethereum to prevent additional rsETH from being minted on the receiving side.

Meanwhile, the seized rsETH on Ethereum will be transferred into the bridge lockbox alongside ETH committed by DeFi United coalition members. Once the lockbox regains full backing, bridge operations and rsETH withdrawals will gradually resume.

Aave also confirmed that temporary emergency configurations introduced during the incident, including setting WETH loan-to-value ratios to zero on Aave V3 Ethereum Core, will soon return to normal as recovery efforts continue progressing.