Aave Restores WETH Collateral Limits After Kelp DAO Exploit

Aave has restored normal Wrapped Ether collateral parameters across its major V3 lending markets, signaling that the protocol has largely stabilized following the massive Kelp DAO exploit that shook decentralized finance markets in April.

Summary:

Aave restored standard WETH loan-to-value ratios across six V3 markets.
The Kelp DAO exploit caused more than $8 billion in temporary TVL outflows.
A coordinated recovery plan has already addressed most protocol bad debt.

The move reverses emergency restrictions imposed after the $292 million attack involving Kelp DAO’s rsETH infrastructure, which temporarily triggered severe liquidity stress across several DeFi lending ecosystems.

In accordance with the rsETH technical recovery plan, WETH LTVs on Aave V3 Ethereum Core, Ethereum Prime, Arbitrum, Base, Mantle, and Linea have been restored to their pre-incident values.

WETH now operates as normal across all affected V3 deployments.

— Aave (@aave) May 17, 2026

WETH Lending Parameters Return to Normal

Aave founder Stani Kulechov confirmed that the protocol reinstated normal Wrapped Ether borrowing limits across Ethereum Core, Ethereum Prime, Arbitrum, Base, Linea and Mantle deployments.

The restored loan-to-value ratios range between roughly 80% and 84% depending on the network, effectively ending the emergency defensive posture introduced after the exploit.

The restrictions were initially implemented to reduce contagion risk after liquidity conditions deteriorated rapidly following the attack on Kelp DAO’s rsETH infrastructure.

At the height of the panic, liquidity utilization across parts of the Aave ecosystem briefly surged toward 100% as users rushed to exit leveraged positions and withdraw collateral.

Coordinated Recovery Plan Stabilized the Ecosystem

The restoration follows a large-scale coordinated recovery operation led by Aave, Kelp DAO and several major DeFi participants.

More than 117,000 fraudulently minted rsETH tokens connected to the exploit were liquidated and burned on Arbitrum as part of a roughly $278 million stabilization plan.

Recovery funds from the Aave Recovery Guardian and Kelp Recovery Safe have since been routed back into Kelp’s LayerZero infrastructure to restore the one-to-one backing of rsETH.

As liquidity conditions improved, Kelp DAO gradually resumed normal rsETH withdrawals, deposits and redemption activity across supported markets.

Legal Fight Over Frozen Funds Continues

While technical recovery efforts advanced, a parallel legal battle emerged around funds frozen after the exploit.

The Arbitrum Security Council previously froze approximately 30,765 ETH – worth roughly $71 million – tied to wallets allegedly connected to the attacker.

The frozen assets later became entangled in legal proceedings after a U.S. law firm investigating potential links to the Lazarus Group issued a restraining notice.

A federal judge in Manhattan subsequently modified portions of the order, clearing the path for a new Arbitrum governance proposal aimed at transferring the funds to Aave-related recovery entities.

The legal developments represented a major step toward fully recapitalizing affected portions of the DeFi ecosystem.

Kelp DAO Overhauls Cross-Chain Infrastructure

The exploit also forced Kelp DAO to significantly restructure its infrastructure strategy.

Investigators determined the attacker exploited weaknesses tied to a “1-of-1” LayerZero verifier setup, allowing poisoned RPC data to bypass cross-chain verification safeguards.

Following the incident, Kelp DAO migrated portions of its cross-chain infrastructure toward Chainlink CCIP architecture to strengthen security protections.

The protocol also announced plans to discontinue rsETH bridging support across several smaller ecosystems including Optimism, HyperEVM, Avalanche and MegaETH after June 15.

Executives said the consolidation effort is intended to reduce operational complexity and improve overall security resilience.

DeFi Markets Begin Stabilizing

The Kelp DAO exploit briefly created one of the most severe stress events for decentralized finance markets in 2026.

Aave’s total value locked fell by more than $8 billion during the immediate aftermath as users aggressively reduced exposure across lending and liquid staking markets.

However, coordinated intervention from protocols including Aave, Arbitrum and Lido Finance helped prevent broader contagion across the sector.

Following the restoration of WETH collateral parameters, Aave’s TVL has stabilized near the $15 billion level, signaling that confidence across core DeFi lending markets is gradually recovering.

The information presented in this article is intended for informational purposes only and should not be interpreted as financial, investment, or trading advice. Coinspress.com does not promote or advocate for any particular investment strategy, asset, or cryptocurrency project. Cryptocurrency markets are highly volatile and unpredictable – always perform your own research and seek guidance from a qualified financial professional before making any investment decisions.

Author

Alexander Stefanov

Reporter at CoinsPress

Alex is Editor-in-Chief of Coinspress and co-founder of Millennial Media Group, with nearly a decade of experience covering financial markets - crypto first, then everything else. It started in 2016 with Bitcoin. Like most people at the time, he didn't fully understand it - so he kept digging. Blockchain, tokenomics, the projects, the cycles. That curiosity never stopped, and eventually pulled him into traditional markets too: equities, commodities, macro. Not because he left crypto behind, but because you can't properly understand one without the other. What drives him is straightforward: he wants to know why something is happening, not just that it's happening. Most market coverage stops at the headline - price up, price down, here's a chart. Alex finds that kind of reporting actively unhelpful. If you walk away from an article without understanding the mechanism behind the move, what did you actually learn? He holds a degree in Tourism from New Bulgarian University - not the most obvious path into financial markets, but markets have a way of pulling in people who are simply too curious to stay out. He has authored over 200 in-depth analyses and more than 10,000 articles across crypto and traditional finance. He still thinks every day in markets teaches him something new. That's probably why he hasn't stopped.