Aave Response to rsETH Exploit

Aave Labs has published a post-mortem on the April 18, 2026, rsETH LayerZero DVN exploit and Aave's response, confirming that all affected markets have been restored, the Ethereum-side LayerZero OFT adapter has been fully refilled, and GHO backing was unaffected throughout.

The exploit resulted from an RPC-poisoning attack on the single LayerZero DVN verifier responsible for attesting to inbound bridge messages on Ethereum, which was configured one-of-one with no redundancy. The attacker manipulated the verifier's view of source-chain state on Unichain, causing it to attest to a burn that never occurred. At 17:35 UTC on Apr. 18, the Ethereum endpoint accepted the forged message and released 116,500 rsETH from the OFT adapter. Within minutes, the attacker used 89,567 rsETH across eight Aave V3 positions on Ethereum Core and Arbitrum to borrow 82,650 WETH and 821 wstETH, maintaining health factors between 1.01 and 1.03.

The Aave Protocol Guardian and Risk Steward applied layered containment between Apr. 18 and May 18, including freezing rsETH and setting its LTV to zero across Aave V3 and V4 (Apr. 18), freezing WETH across six V3 deployments (Apr. 20), and pausing rsETH reserves across five V3 markets to preserve the ability to liquidate attacker positions (Apr. 23). The Aave DAO approved AIP-478 to liquidate the eight attacker positions (executed May 6), transferring 89,567 rsETH to the Aave Recovery Guardian. WETH LTVs across affected V3 deployments were restored to pre-exploit values by May 16, and the Risk Steward reset the WETH interest rate model to pre-incident parameters on May 18.

Aave Labs led a recovery coordination effort called DeFi United, which reached ~$300 million in commitments from contributors, including Lido, EtherFi Foundation, Ethena, KelpDAO, LayerZero, Compound, Consensys, and others. The recovery proceeded in five tranches deposited into the LayerZero OFT adapter between May 13 and May 26, totaling 116,131.72 rsETH and restoring rsETH backing in full.

The Arbitrum Security Council immobilized ~30,765.67 ETH connected to the attacker on Apr. 21. On May 1, judgment creditors in an unrelated federal matter served a restraining notice seeking to seize those assets. Aave LLC filed an emergency motion to vacate. On May 8, a court order modified the restraining notice to permit an Arbitrum governance vote authorizing transfer of the ETH to Aave LLC, with the restraining notice attaching to Aave LLC upon transfer. The Arbitrum constitutional AIP authorizing the transfer has passed and is pending onchain execution.

The post-mortem identifies the following risk and security improvements now underway:

• A new Technical Asset Listing Framework was posted to the Aave governance forum on May 28, formalizing the technical baseline for new listings, continued listings, and material parameter expansions on V3, V4, and Horizon
• A forthcoming Bridge Assessment Framework and LlamaRisk Risk Framework
• Automated supply and borrow cap management for Aave V3 and V4, targeting caps at roughly 1.2 to 1.3 times current deposits for active reserves
• An automated LTV0 system that reduces a collateral's LTV to zero when risk thresholds are met, limiting contagion risk; on Aave V4, a Dynamic Risk Configuration system extends this to independent collateral factor management for new versus existing users
• Offboarding of lower-TVL deployments to concentrate resources on the largest markets
• Expanded use of Aave V4's spoke-level isolation architecture, which contains stress at the spoke level before it reaches the hub
• A fivefold increase in Aave bug bounty rewards and tightened operational security standards across Aave Labs and service providers

Following the approval of AIP-482, Aave Labs has confirmed that WETH LTVs on Aave V3 Ethereum Core, Ethereum Prime, Arbitrum, Base, Mantle, and Linea have been restored to their pre-incident values.

The Aave DAO has approved AIP-482 to restore WETH Loan-to-Value (LTV) ratios to their pre-exploit values across six Aave V3 instances, completing the removal of precautionary constraints applied on Apr. 18, 2026, following the Kelp/LayerZero OFT bridge exploit. The Risk Guardian had already lifted the WETH freeze on the affected L2 instances prior to this vote. Base reserve LTV restorations are as follows:

• Ethereum Core: 0% to 80.50%
• Ethereum Prime: 0% to 84.00%
• Arbitrum: 0% to 80.00%
• Base: 0% to 80.00%
• Mantle: 0% to 80.50%
• Linea: 0% to 80.00%

The proposal also restores the WETH E-Mode LTV flag in the ETH-correlated E-Mode on Ethereum Core (93%), Arbitrum (93%), and Base (90%). Liquidation thresholds, liquidation bonuses, and reserve factors are unchanged across all affected markets.

Aave Labs has confirmed that rsETH reserves have been unpaused on the Ethereum Core, Arbitrum, Base, Linea, and Mantle V3 markets, enabling users to withdraw rsETH from each deployment.

LlamaRisk has submitted a direct-to-AIP proposal in the Aave forum discussion to restore the WETH market functionality across six deployments, following precautionary measures enacted after the Kelp/LayerZero OFT bridge exploit. WETH loan-to-value (LTV) ratios are being restored to pre-exploit levels across Ethereum Core, Ethereum Prime, Arbitrum, Base, Mantle, and Linea, with Ethereum Core returning to 80.50%. The Risk Guardian is concurrently lifting the WETH freeze on the four affected Layer 2 instances (Arbitrum, Base, Mantle, and Linea), effective May 10, 2026 at 11:28 UTC. E-Mode LTV settings for WETH are also being reverted to their respective category caps. The restorations are enabled by the liquidation of attacker positions, the recovery of 106,993 rsETH, and commitments from the DeFi United coalition to cover remaining bad debt.

The Aave team has announced that the attacker's rsETH-backed positions on Aave have been liquidated on both Ethereum and Arbitrum, with the liquidated collateral now held by the Recovery Guardian as specified in AIP-478.

The Aave DAO has approved AIP-478, authorizing liquidation of eight rsETH attacker positions across Aave V3 Ethereum Core and Aave V3 Arbitrum as part of the DeFi United recovery effort and technical plan. The liquidations will reduce outstanding bad debt risk, recover available rsETH collateral from Aave liquidations, and route the recovered value to the multisig managed by DeFi United.

The positions collectively hold around 89,567 rsETH in collateral against ~82,650 WETH and 821 wstETH in outstanding debt. Upon execution, risk parameters for each position are adjusted to make them eligible for liquidation, the rsETH collateral is seized, and transferred to the Recovery Guardian, a multisig composed of Aave DAO service providers. The Recovery Guardian is granted temporary permissions to update Umbrella parameters and eliminate deficits on the affected markets. Permissions will be revoked once the incident is resolved.

The Aave team has provided an update stating that rsETH reserves have been paused on Ethereum Core, Arbitrum, Base, Mantle, and Linea. The team states that the action was taken "with the objective of recovering additional funds" as recovery efforts continue.

The Aave team has provided an update stating that WETH reserves on the Ethereum Core V3 market have been unfrozen. Meanwhile, the WETH reserves on Ethereum Prime, Arbitrum, Base, Mantle, and Linea remain frozen. Users can now supply WETH to the Ethereum Core V3 market with WETH LTV remaining at 0.

Aave service providers, including LlamaRisk, have published a joint incident report detailing the protocol's exposure to the Kelp DAO rsETH bridge exploit. Of the 116,500 rsETH obtained in the exploit, the attacker deposited 89,567 rsETH ($221.4 million) as collateral on Aave across Ethereum Core and Arbitrum, borrowing approximately 82,650 WETH ($190.9 million) and 821 wstETH ($2.3 million) across seven addresses. Aave's smart contracts were not compromised at any point during the incident.

Between April 18 and April 20, the Protocol Guardian and Risk Steward executed a series of defensive actions. The Protocol Guardian froze all rsETH and wrsETH reserves across 11 Aave V3 deployments, set LTV to 0, and subsequently froze WETH on Core, Prime, Arbitrum, Base, Mantle, and Linea. The Risk Steward reduced WETH borrow rates at 100% utilization from a range of 8.5 to 10.5% down to 3.0% APR across non-Core markets, then applied the same adjustment to Core with Slope 1 set to 2%, Slope 2 set to 3%, and optimal utilization set to 94%.

The report models two bad debt scenarios, as Kelp has not confirmed how losses will be allocated. Under Scenario 1, losses are socialized uniformly across all rsETH, resulting in a 15.12% depeg and an estimated $123.7 million in total bad debt. Ethereum Core would absorb $91.8 million (1.54% of its WETH reserve) and Mantle $10.4 million (9.54% shortfall). Under Scenario 2, losses are isolated to L2 rsETH only, applying a 73.54% haircut and producing an estimated $230.1 million in bad debt concentrated entirely on L2 chains. Mantle would face a 71.45% WETH shortfall ($77.7 million), Arbitrum 26.67% ($88.4 million), and Base 23.28% ($47.5 million), while Ethereum Core would be unaffected.

Regardless of which scenario materializes, service providers have recommended pausing the Umbrella WETH staking module as a precautionary measure, noting that 18,922 of 23,507 staked aWETH (~80%) are already in unstaking cooldown. A pause of at least 22 days would allow all existing cooldowns and withdrawal windows to expire, restoring the full staked balance as effective coverage. Under Scenario 1, where Ethereum Core absorbs bad debt, the Umbrella WETH module (23,507 aWETH, ~$54 million) would become a direct coverage source against the $91.8 million Core shortfall. Under Scenario 2, where losses are isolated to L2s, the Umbrella module would not be triggered, as it currently covers Ethereum Core reserves only, and L2 bad debt would need to be addressed through the DAO treasury or other means.

All WETH reserves across Ethereum, Arbitrum, Base, Linea, and Mantle are currently at 100% utilization. The attacker's seven positions have health factors between 1.01 and 1.03, placing them near the liquidation threshold, but at full utilization, liquidators would receive aWETH rather than underlying WETH, reducing liquidation throughput and increasing the likelihood that shortfalls crystallize as bad debt.

Aave has published an update on the Kelp DAO rsETH bridge exploit, confirming that Aave's own contracts were not compromised and that the incident is isolated to the rsETH bridge. Aave claims that rsETH on the Ethereum mainnet is fully backed.

rsETH has remained frozen across Aave V3 and Aave V4, preventing new deposits and borrowing against rsETH collateral while the situation is assessed. rsETH has no borrowing power on either deployment, and Aave states that neither version has further exposure to rsETH. WETH reserves have also been frozen across affected markets on Ethereum, Arbitrum, Base, Mantle, and Linea.

Aave Labs has provided an update stating that, according to its analysis, "rsETH on Ethereum mainnet is fully backed." The team is actively assessing potential resolutions; rsETH remains frozen across Aave V3 and V4, along with WETH reserves.

LlamaRisk has shared an update stating that the Protocol Guardian has frozen WETH on Core, Prime, Arbitrum, Base, Mantle, and Linea, preventing new borrows against WETH collateral as a precautionary measure.

LlamaRisk has shared a forum post confirming that the Aave Guardian initiated freezes on rsETH and wrsETH markets across all deployments starting at 18:52 UTC on Apr. 18, 2026, with the Protocol Security Council applying the equivalent protective measures on Aave V4. LlamaRisk confirmed that "all Aave pools remain safe and fully operational," and disclosed that it is actively coordinating with the Kelp, LayerZero, and other relevant teams.

Aave Labs has announced that the rsETH markets on Aave V3 and V4 have been frozen in response to the ongoing Kelp DAO bridge exploit, temporarily preventing new deposits and borrows against rsETH collateral. The move follows community reports that the attacker posted a portion of the stolen rsETH as collateral on the Aave V3 Ethereum instance and borrowed WETH.