Ethereum liquid staking protocol Kelp DAO last week completed a 5-week recovery effort, announcing that its restaked Ethereum token rsETH is now fully operational again. The restoration stems from a chain reaction triggered on April 18 when the North Korean Lazarus hacking group stole $293 million.
Kelp DAO posted on X last Monday that the final batch of 20,373.7 rsETH had been sent to the LayerZero smart contract, which handles locking, minting, burning and releasing during cross-chain transfers. This marked the end of the execution phase of the rsETH recovery plan.
DeFi United: Five Protocols Jointly Fund the Recovery
The restoration was not done by Kelp DAO alone. Multiple crypto protocols contributed funds through the DeFi United initiative to rebuild rsETH's collateral. Kelp DAO said core functions such as minting, redemption and reward distribution have been running smoothly since withdrawals were restarted earlier this month.
Looking at the timeline: the first 25,000 rsETH were transferred on May 13, reopening cross-chain channels between Ethereum mainnet and Layer 2 networks. The next day, Kelp DAO officially resumed withdrawal functions.
Aave's TVL Shrinks from $26.4B to Below $1.4B
The knock-on effect on DeFi liquidity from the Kelp DAO hack was far more severe than initially expected. Aave was one of the first protocols to feel the shock. The hacker dumped 116,500 rsETH into Aave's lending platform as collateral, borrowing Wrapped Ether and creating $190 million in bad debt, triggering a wave of withdrawals. Aave's total value locked plunged from $26.4 billion to below $1.4 billion, losing its long-held status as the largest DeFi protocol.
Aave Liquidity Still in Limbo
DefiLlama data shows net outflows from Aave's lending markets have slowed noticeably in the past month. Yet TVL has shown no clear signs of recovery, hovering between $13.9 billion and $15.1 billion since about a week after the incident.
The episode underscores how interconnected DeFi protocols are. When the capital chain between liquid staking, restaking and cross-chain bridges breaks, the impact cascades quickly into downstream lending markets. While Kelp DAO's recovery is complete, rebuilding liquidity across the DeFi ecosystem will take time.