Aave has liquidated its remaining rsETH positions stolen in the $293 million Kelp DAO exploit, releasing 13,000 ETH valued at $30.2 million across Ethereum and Arbitrum. The move marks a critical step in the DeFi United recovery coordination, but progress now hinges on a legal standoff over 30,765 ETH frozen by Arbitrum DAO and a restraining notice filed by Gerstein Harrow LLP that threatens to derail the entire plan.
Liquidations Complete as Recovery Framework Solidifies
Aave announced the completion of liquidations on May 7, describing the action as a “critical step” in the DeFi United recovery plan. The protocol had signaled its intention to liquidate on April 28, following a $12 billion TVL drain triggered by $190 million in bad debt from the hacker’s collateralized borrowing on Aave itself. The liquidations convert stolen rsETH—a liquid restaking token issued by Kelp DAO—into ETH, simplifying the recovery mechanism. This represents the largest coordinated liquidation event in the DeFi recovery space to date.
Legal Dispute Blocks Final ETH Release from Arbitrum DAO
The recovery faces a critical bottleneck. Arbitrum DAO voters approved the release of 30,765 ETH with 90% support, but Gerstein Harrow LLP filed a restraining notice that prevents execution. Aave has filed an emergency motion to vacate the notice. Thaddeus Pinakiewicz, VP at Galaxy Digital, described the situation as “legal limbo,” noting that the community needs to “get it over the line and plug the hole.” The frozen ETH represents approximately 10% of the remaining shortfall needed to fully restore rsETH backing. Without Arbitrum’s release, the recovery plan cannot reach completion.
Stablecoin Commitments Remain Pending as Aave TVL Stabilizes
Aave’s TVL has recovered to $15 billion after dropping to $14.2 billion on April 26, signaling stabilization following the liquidations. However, full rsETH restoration depends on commitments from Circle, Ethena, Frax, and Ink—stablecoin issuers and protocols whose participation has not yet been publicly confirmed. The recovery framework requires coordinated action across multiple protocols, and delays from any participant could extend the timeline indefinitely.
Next 48 Hours Critical for Restraining Notice Resolution
Arbitrum DAO’s voting closes Friday, but the restraining notice creates uncertainty around enforcement. Aave’s emergency motion outcome remains pending. The resolution of the legal dispute will determine whether the frozen ETH reaches the Recovery Guardian multisignature wallet or remains locked. Until then, the recovery sits 10% short of its target, with no confirmed timeline for stablecoin issuer participation.
