Aave Restores WETH Borrowing Limits After $230M Exploit

Aave announced on May 17 that wrapped ether (WETH) loan‑to‑value (LTV) ratios are back to pre‑incident levels on its V3 deployments across six major networks [2]. The move undoes the emergency 0 % LTV caps imposed in April when a bridge exploit tied to Kelp DAO’s rsETH token drained roughly $230 million in ETH from the protocol [1].

The exploit hinged on a LayerZero bridging misconfiguration that let attackers mint about $292 million in unbacked rsETH, which they then used as collateral to siphon ETH from Aave [3]. In response, Aave cut WETH borrowing to zero on Ethereum Core, Ethereum Prime, Arbitrum, Base, Mantle and Linea, effectively freezing a key source of leverage for traders [2]. Over the following weeks, coordinated liquidations recovered 106,993 of the 112,103 unbacked rsETH tokens—89,567 through Aave and 17,426 via Compound—leaving a shortfall of roughly 5,200 rsETH for the DeFi United coalition to cover [1].

Restoring the LTVs to 80.5 % on Ethereum Core and Mantle, 84 % on Ethereum Prime, and 80 % on Arbitrum, Base and Linea shows Aave’s confidence that the immediate systemic risk has been contained [2]. The decision frees trapped capital, re‑enables leverage strategies, and improves liquidity efficiency across the affected ecosystems [1]. However, legal disputes over frozen assets and liability remain unresolved, and the protocol’s governance will need to monitor whether the restored borrowing capacity translates into renewed demand for leveraged positions [1].

The broader significance lies in how quickly a leading DeFi lender can rebound from a cross‑chain breach. While the recovery of most unbacked rsETH demonstrates effective crisis coordination, the lingering shortfall and ongoing lawsuits highlight persistent bridge vulnerabilities. Market participants will watch Aave’s next steps—particularly any tightening of asset listing standards or further risk‑management reforms—to gauge whether the protocol can sustain confidence after such a large‑scale exploit.