Aave clears final $30M rsETH positions after KelpDAO exploit, but frozen ETH/legal risk remains

Published: 2026-05-07 13:22:00 |

Aave has cleared the final remaining rsETH-backed positions tied to the $293M KelpDAO exploit across Ethereum and Arbitrum. The Aave liquidation moved recovered collateral to the Recovery Guardian multisig controlled by DeFi United, and deposits were reported as unaffected. Aave also said its Umbrella protection system was not activated. Still, Aave recovery is not complete. After the latest liquidation, rsETH supply remains about 10% short of full Ethereum backing. A key overhang is frozen ETH: 30,765 ETH (~$71M) is held by the Arbitrum DAO amid a U.S. restraining notice requested by Gerstein Harrow LLP. More than 90% of Arbitrum DAO voters support releasing the funds, and Aave filed an emergency motion in New York to vacate the notice. Traders will watch whether stablecoin issuers Circle (USDC), Ethena (ENA) and Frax (FRAX)—plus Ink (INK)—provide additional support to close the recapitalization gap. In the near term, Aave’s technical progress may support sentiment, but timing around the frozen ETH can still drive DeFi risk volatility.

Neutral

Technically, the Aave liquidation of the remaining rsETH-backed positions is a clear risk-reduction step and may support DeFi sentiment. However, the market still faces a sizable unresolved overhang: 30,765 ETH remains frozen due to legal/legal-notice friction, keeping part of the recapitalization timeline uncertain. With rsETH still ~10% short and additional support from Circle/USDC, Ethena/ENA, Frax/FRAX and Ink/INK required, outcomes depend on both governance/legal resolution and third-party commitments. Net impact on the specific assets is therefore mixed rather than outright bullish or bearish.