Aave recovers 90% of stolen ETH after Kelp DAO hack; Arbitrum ETH frozen still in legal limbo

Aave says it has recovered about 90% of the ETH stolen in the $293M Kelp DAO hack by liquidating the attacker’s remaining rsETH positions on both Ethereum and Arbitrum. The protocol transferred the remaining collateral to a “Recovery Guardian” multisig wallet operated under the DeFi United recovery plan. Aave also states user funds were not affected and its Umbrella bad-debt insurance was not used. Market commentary cited by Galaxy Digital suggests only ~10% of the targeted ETH remains to be recovered. The main near-term risk is a separate tranche still frozen by Arbitrum DAO: 30,765 ETH is held in “legal limbo” after Gerstein Harrow LLP filed a restraining notice. Aave has moved to vacate the notice, while Arbitrum DAO governance voting is ongoing and expected to close by Friday on whether to transfer the frozen ETH to DeFi United. Aave’s broader recovery momentum is improving. After the incident, TVL reportedly fell sharply and bad debt rose above $190M, but DefiLlama data showed outflows easing and total locked value rebounding from around $14.2B (Apr 26) to above $15B. Aave is also seeking additional support pledges from Circle, Ethena, Frax, and Kraken’s Ink to help complete the recovery plan and reduce remaining loss uncertainty. For crypto traders, Aave recovers 90% stolen ETH is a constructive headline for sentiment around DeFi credit risk. However, the unresolved Arbitrum DAO frozen-ETH dispute is a catalyst risk that can affect near-term expectations for final settlement of the hack’s residual losses.