Decentralized finance (DeFi) lending platform Aave has re-enabled borrowing against wrapped Ether (WETH) on multiple blockchain networks. This development signals substantial headway in addressing the repercussions of the April exploit affecting Kelp DAO, which triggered widespread liquidity challenges and a decline in the protocol’s total value locked (TVL).
Aave founder and CEO Stani Kulechov announced the change on May 17, 2026, confirming that loan-to-value (LTV) ratios for WETH collateral had been restored to their original settings on Aave V3 deployments.
The next step in the rsETH technical recovery plan has been completed with the restoration of WETH LTVs to their pre-incident levels across all affected networks. Users can now once again borrow against WETH on Aave, including through collateral and debt swaps. https://t.co/6BzxUtu3Ci
— Stani (@StaniKulechov) May 17, 2026
The affected instances include Ethereum Core, Ethereum Prime, Arbitrum, Base, Mantle, and Linea.
Users can now once again leverage WETH as collateral for loans and perform collateral or debt swaps without the previous restrictions.
The restrictions were originally imposed as a protective measure after the April 18 incident.
Attackers had exploited a vulnerability in Kelp DAO’s LayerZero-based bridge, minting significant amounts of unbacked rsETH (a liquid restaking token).
They then deposited this collateral into Aave V3 markets to borrow substantial volumes of WETH, resulting in roughly $195–236 million in bad debt for the protocol.
In response, Aave’s governance and security teams froze WETH borrowing capabilities to safeguard depositors and prevent further systemic risk while recovery efforts unfolded.
This latest restoration represents the completion of the next phase in a coordinated technical recovery plan for rsETH.
Earlier actions included restoring backing to the affected token through recovered assets, reopening withdrawals, liquidating vulnerable positions, and collaborating with industry partners under initiatives like DeFi United.
Community governance proposals played a key role in gradually lifting safeguards as risk parameters stabilized.
The incident had a profound impact on Aave’s ecosystem.
Data indicates the protocol experienced a TVL reduction exceeding $8 billion in the immediate aftermath, dropping from peaks near $23.5 billion earlier in the year to around $14.8 billion recently.
The event also sparked temporary liquidity crunches, elevated utilization rates in core pools, and prompted user withdrawals amid uncertainty.
Despite these pressures, Aave’s robust risk management framework—bolstered by insurance funds, decentralized governance, and swift parameter adjustments—helped contain the damage and facilitate an orderly recovery.
Broader implications extend to Kelp DAO and cross-chain infrastructure. \
The project has been working to refill rsETH reserves, migrate to more secure bridging solutions like Chainlink’s CCIP, and streamline operations by discontinuing support on select networks after mid-June.
Legal proceedings continue regarding frozen assets potentially linked to the exploit, including disputes over approximately $71 million in ETH, but these have not halted technical progress on the lending side.
For the DeFi sector, Aave’s successful navigation of this challenge underscores the importance of layered security, rapid response mechanisms, and collaborative recovery strategies.
By methodically reinstating functionality, the protocol demonstrates resilience and reinforces confidence among users and liquidity providers. As markets stabilize, attention turns to long-term enhancements in bridge security and collateral risk assessment to prevent similar vulnerabilities.