Aave reinstated Wrapped Ether loan-to-value limits and reopened WETH markets on May 17, 2026, after a coordinated recovery from the April rsETH bridge exploit. The move restored normal borrowing conditions across Aave V3 deployments and resumed rsETH deposits and withdrawals, easing a major liquidity constraint for traders and treasury teams.
The restoration follows a multi-protocol effort to neutralize forged rsETH supply, recover most of the affected tokens and reduce the risk of cascading bad debt across lending markets. For DeFi risk managers, the episode shows how bridge failures can rapidly transmit into lending-market stress when collateral integrity is compromised.
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
Forged rsETH Pushed Aave Into Emergency Mode
The exploit began on April 18, 2026, when Kelp DAO’s LayerZero-powered rsETH bridge was breached and roughly 116,500 rsETH were created without backing. The incident carried an estimated $290 million to $292 million impact and pushed WETH utilization on Aave to 100%, forcing emergency LTV cuts to 0% and temporary withdrawal freezes.
On April 20, the Arbitrum Security Council froze about 30,766 ETH, worth roughly $72 million, linked to the attacker. That freeze became a central recovery asset, though its final disposition remains subject to legal proceedings.
Between May 6 and May 13, Aave and partner protocols liquidated attacker positions and burned exploiter rsETH on Arbitrum. Those actions removed a large share of the unbacked supply and created the technical basis for restoring normal market parameters.
Recovery data show that approximately 112,103 unbacked rsETH were created, with roughly 106,993 recovered through coordinated actions. Aave liquidations accounted for about 89,567 rsETH, while Compound liquidations recovered about 17,426 rsETH.
DeFi United Refills Collateral and Restores Market Function
A remaining shortfall of roughly 5,200 rsETH is expected to be covered by a coalition of ecosystem participants. The DeFi United coalition has mobilized more than $300 million in ETH commitments from Lido, Ether.fi, LayerZero, Compound, Mantle, Aave DAO and others to refill rsETH backing.
Aave said the liquidation and burn process represented one of the final on-chain steps before refilling operations could begin. That milestone enabled the Direct-to-AIP governance action titled “WETH Unfreeze and LTV Restoration”, which reinstated pre-incident LTVs across Ethereum Core, Ethereum Prime, Arbitrum, Base, Mantle and Linea.
The immediate market impact is constructive. WETH borrowing is available again, rsETH deposits and withdrawals have resumed, and liquidity stress has eased for traders and institutional treasuries that rely on Aave’s lending markets.
Two unresolved items remain important. A legal hearing over frozen ETH is scheduled for June 5, 2026, and Kelp DAO plans to discontinue rsETH bridging on several networks after June 15 as part of a broader security consolidation.
Kelp’s move to migrate bridging infrastructure toward Chainlink CCIP also reflects a wider shift toward stricter cross-chain controls after recent bridge failures. For risk teams, the lesson is clear: collateral quality, bridge configuration and legal recoverability are now inseparable in DeFi credit analysis.
Treasury managers should treat Aave’s restored parameters as operationally stable, while monitoring the June hearing and Kelp’s network changes. Those events will determine whether remaining collateral gaps are fully resolved and whether additional risk adjustments are needed.
