Aave rsETH Recovery Enters Next Phase After Exploit

The rsETH recovery process has entered its second phase after a hacker exploited a vulnerability in Kelp DAO's LayerZero bridge on April 18, resulting in a $293 million loss.

The attacker minted 116,500 unbacked rsETH tokens and used them as collateral on Aave to borrow ETH. This left over $190 million in bad debt on the platform, but fortunately, regular user funds were not affected during the liquidation process.

Arbirum DAO has recovered 30,765 ETH from the exploit and plans to return it to Aave users. However, a U.S. law firm has filed a restraining notice arguing that the funds may be linked to the Lazarus Group, which could complicate the recovery process.

The next step in the recovery phase is burning the liquidated rsETH tokens on Arbitrum, which will restore the token's 1:1 backing and reduce the inflated supply. However, a date for this process has not been confirmed yet.

Aave users can expect to regain access to their funds once the bridge lockbox is fully backed, but this depends on the DeFi United coalition filling the remaining ETH gap and resolving the $71 million freeze.