Aave Restores WETH Borrowing Amid Kelp DAO Recovery
By John Nada·May 18, 2026·2 min read
Aave restores WETH borrowing after Kelp DAO exploit recovery, amid market shifts and strategic updates.
Aave has flipped the script on the freeze of borrowing capabilities for wrapped Ether (WETH) on its decentralized finance protocol. This pivot comes as Aave adjusts loan-to-value ratios back to pre-exploit levels, signaling progress in the recovery from the Kelp DAO breach.
Aave founder Stani Kulechov, in a decisive statement on X, highlighted the reinstatement of WETH LTVs across several networks, including Aave V3 Ethereum Core, Ethereum Prime, Arbitrum, Base, Mantle, and Linea. Kulechov's update marks a significant shift from the precautionary freeze that had been put in place.
The freeze was a defensive move, arising from the exploit that saw North Korean-linked actors steal 116,500 Kelp DAO Restaked Ether tokens. These were used on Aave V3 as collateral to borrow WETH, leaving approximately $195 million in bad debt in its wake. Cointelegraph notes that this breach resulted in Aave's total value locked (TVL) plummeting from $23.5 billion in March to about $14.8 billion as of this week.
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Yet, with the freeze lifted, the market dynamics are evolving. Tom Wan, head of data at Entropy Advisors, points out that despite the dip in wrapped stETH and wrapped Ether deposits by $1.2 billion and $1.76 billion respectively, there is now more unused Ether liquidity in the system. The borrowing rate has also decreased to 1.9%, potentially enticing traders back into the leveraged Ether yield strategies.
Still, the road to normalcy isn't without its detours. Kelp DAO is taking measures to ensure network security by sunsetting rsETH bridging on several platforms after June 15, including Optimism and MegaETH. Cointelegraph reported that Kelp DAO is shifting its restaking tokens to the Chainlink oracle platform, trying to shrug off the past vulnerabilities linked to LayerZero’s cross-chain infrastructure.
The broader question lingers: will the demand for Ether loop strategies reclaim its previous vigor, or will capital remain hesitant, seeking refuge in alternatives like Spark or Morpho? The moves by both Aave and Kelp DAO suggest a cautious yet determined stride toward stability, even if the scars of the exploit aren't fully healed.