Aave Restores WETH Borrowing After Kelp Exploit

Aave has restored wrapped Ether borrowing limits across six Aave V3 markets affected by the rsETH crisis, reopening a major part of normal lending activity after weeks of emergency restrictions.

Aave founder Stani Kulechov said WETH loan-to-value ratios have returned to pre-incident levels on Ethereum Core, Ethereum Prime, Arbitrum, Base, Mantle and Linea. The change allows users to borrow against WETH again, including through strategies that swap collateral or debt positions.

$195M Aave Bad Debt Followed Kelp Exploit

The restrictions were introduced after the April 18 Kelp DAO exploit, when attackers stole 116,500 rsETH from Kelp DAO’s LayerZero-powered bridge.

The stolen tokens were later used as collateral on Aave V3 to borrow wrapped Ether, spreading the impact into DeFi lending markets. The incident created about $195 million in bad debt on Aave, making it one of the largest DeFi spillovers by bad-debt impact.

Six Markets Restore WETH Limits After Phase II

Aave said the WETH freeze was a temporary safety measure alongside freezes on rsETH and wrsETH reserves. A governance proposal that passed over the weekend said the protocol could now lift those restrictions because recovery efforts had progressed enough to restore borrowing without weakening user protection.

The move marked the final step in Phase II of the rsETH recovery plan, which also restored rsETH backing and reopened withdrawals using frozen Ether and support from the DeFi United coalition.

Ether Borrowing Rates Fall to 1.9% as Liquidity Improves

The restoration also suggests liquidity conditions inside Aave have improved. Tom Wan of Entropy Advisors said Ether utilization on the protocol has dropped back below 90%. Annualized borrowing rates have also fallen to 1.9%, which could make leveraged Ether strategies more viable again after the exploit pushed Aave into a defensive posture.

The restoration does not erase the losses caused by the Kelp incident. But it shows Aave has moved from emergency restrictions back toward normal WETH lending.

The next issue is whether the wider rsETH recovery effort can fully resolve the remaining bad debt and restore confidence in rsETH as collateral across lending markets.