Aave emphasized that this liquidation reduced liquidity risk without jeopardizing user funds, and reiterated that its automatic protection mechanism for bad debts, Umbrella, was not activated during this operation. This development comes as DeFi News United is advancing a broader funding plan along with a series of on-chain and off-chain governance actions aimed at restoring the collateral and legitimacy of rsETH.
Key Points
Progress on Recovery and rsETH Restoration Plan
The liquidation of the hacker's rsETH collateral on Ethereum and Arbitrum marks a substantial step towards strengthening support for rsETH. By transferring the collateral to the Recovery Guardian, DeFi News United aims to create a more predictable compensation pathway for affected users and restore the integrity of the rsETH staking framework. Currently, the total value of the liquidation portion is still in transition, and observers are closely monitoring the next batch of ETH needed to complete the support.
Thaddeus Pinakiewicz from Galaxy Digital's research team views the current status as a short-term milestone rather than a final remedy. He noted, “DeFi News United is currently about 10% short of ETH needed to restore full rsETH support,” emphasizing that the success of the plan relies on acquiring relatively small but critical liquidity from the broader ecosystem. The remaining 30,765 ETH is currently frozen by Arbitrum DAO, reflecting the ongoing tension between on-chain recovery mechanisms and legal/organizational processes in crisis situations.
Legal Framework, Governance, and Future Path
The legal aspects of the Kelp DAO incident remain a significant obstacle. A restraining notice submitted by Gerstein Harrow LLP aims to prevent the redistribution of frozen ETH during the ongoing case, creating a “legal stalemate” that could delay the final recovery steps. In response, Aave has filed an emergency motion to lift the restraining notice, indicating that the recovery coalition is actively pursuing legal actions.
Meanwhile, Arbitrum DAO is conducting a governance vote on unlocking the frozen ETH to the DeFi News United fund. Over 90% of voters participating in the vote expressed support, a result that could unlock significant collateral needed to support rsETH. The voting will conclude on Friday, and this decision will test the DAO's ability to balance its fiduciary responsibilities with broader goals of DeFi News resilience. For some observers, this situation also highlights the evolving role of DAOs in crisis response and the regulatory scrutiny that may accompany large-scale cross-chain capital flows.
Market Impact and Ecosystem Resilience
This rebound is not a celebration of victory. The event reveals structural vulnerabilities in DeFi News lending and cross-chain collateral arrangements, especially when the attacker’s assets are used as collateral for new loans. The current recovery push benefits from on-chain governance, legal processes, and strategic partnerships with major stablecoins and L2 infrastructure.