Aave Labs has executed a significant liquidation of the remaining rsETH positions held by the Kelp DAO hacker on the Ethereum and Arbitrum networks, accelerating efforts to restore stability within the decentralized finance (DeFi) ecosystem following one of the year's most crippling exploits.
This decisive action is a crucial component of the "DeFi United" recovery initiative, aimed at reimbursing affected users and revitalizing confidence in the DeFi landscape. In a statement released on X, Aave indicated that the liquidated collateral, stemming from an exploit valued at approximately $293 million on April 18, has since been transferred to a multisignature wallet managed by DeFi United, known as the Recovery Guardian.
Thaddeus Pinakiewicz, a vice president at Galaxy Digital, revealed that Aave is now just 10% away from fully recovering from the considerable bad debt inflicted on its lending protocol during the hack. This setback has reverberated throughout the DeFi lending market, creating a wave of challenges that impacted billions of dollars in liquidity and rattled investor confidence.
Aave has reassured stakeholders that user funds remain unaffected by these liquidations, and its automated protection mechanism against bad debt—Umbrella—was not activated in this instance. On April 28, Aave projected that resolving the hacker’s positions would release around 13,000 Ether (ETH), equivalent to nearly $30.2 million at current market rates.
However, complications arise as another 30,765 ETH remains in a frozen state by Arbitrum DAO, currently entangled in legal disputes following a restraining notice from the U.S. law firm Gerstein Harrow LLP. This legal challenge has prompted a swift response from Aave, which has filed an emergency motion to vacate the notice and expedite the release of these assets.
In the meantime, the Arbitrum DAO community is deliberating a proposal to release the frozen ETH to the DeFi United recovery fund, with over 90% of voters thus far in favor of the motion, pending a vote closure scheduled for Friday.
As Aave navigates these turbulent waters, the protocol is also engaged in discussions with several stablecoin issuers, including Circle, Ethena, and Frax, as well as the Kraken-developed Ethereum layer 2 project Ink, to secure additional commitments essential for completing its recovery plan, according to Pinakiewicz.
Having felt the impact of the Kelp DAO exploit acutely, Aave experienced a staggering decline in total value locked (TVL), dropping nearly $12 billion within a week. The exploit involved the hacker using stolen rsETH tokens as collateral to borrow wrapped Ether, leaving a staggering $190 million in bad debt and inciting a dramatic outflow of funds from the protocol. Recent data from DefiLlama indicates a more stable trend, with Aave’s TVL recovering from a low of $14.2 billion on April 26 back above the $15 billion threshold.
The coming weeks are critical for Aave as it strives to regain its footing in the DeFi space and reassure users of its resilience and commitment to recovery.
Source: Cointelegraph
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