Aave has entered a crucial phase in its recovery process after the recent rsETH exploit shocked the decentralized finance market. The protocol confirmed that it has now activated Phase II of the recovery effort. This move comes after the liquidation of the attacker’s positions on Aave V3 and a major legal breakthrough regarding frozen assets. The latest developments show that Aave wants to quickly restore trust while protecting affected users.
The recovery operation involves several moving parts. Aave must manage regulatory restrictions, restore liquidity, stabilize protocol operations, and reduce the impact of manipulated assets. At the same time, the platform continues to work with the Arbitrum DAO and legal authorities to ensure that users ultimately receive the recovered funds. The situation has become one of the most closely watched recovery efforts in the decentralized finance sector this year.
Aave: rsETH recovery enters phase II, attacker positions are liquidated
Aave has released Phase II of its rsETH recovery plan, confirming that the attacker’s Aave V3 positions were liquidated on May 6. While the Arbitrum DAO voted to return $71 million in recovered funds $ETH to Aave… pic.twitter.com/QwaQe6PrRi
— Wu Blockchain (@WuBlockchain) May 9, 2026
Aave confirms liquidation of attacker’s positions
Aave revealed that the attacker’s Aave V3 positions were liquidated on May 6. This step marked an important milestone in the recovery process. The protocol was intended to remove inflated positions that were disrupting the balance of credit markets.
The liquidation reduced the immediate pressure on the ecosystem. It also allowed the team to move forward with the next phase of stabilization. The exploit had created abnormal rsETH delivery conditions, which threatened normal protocol operations. By liquidating the positions, Aave reduced systemic risk and improved market stability.
Arbitrum DAO plays a crucial role in recovery
The Arbitrum DAO has also made a major contribution to the recovery process. The DAO voted to return nearly $71 million in recovered funds $ETH to affected Aave users. This decision highlighted the growing role of decentralized governance during crisis situations.
Community governance became essential during the incident. DAO members evaluated several recovery proposals before choosing the final path forward. The process demonstrated how decentralized communities can respond during major protocol emergencies.
The recovered $ETH now represents one of the largest recovery pools related to the incident. Aave plans to use these funds to restore affected balances and reduce user losses. The Protocol continues to work with legal teams to complete the transfer process.
Aave plans temporary loans to fill the gap
Aave also confirmed that it will lend money temporarily until its limited assets become fully accessible. This decision ensures that users will not suffer lengthy delays while the legal process continues.
The protocol aims to maintain smooth operation despite the temporary financing gap. By lending, Aave can continue to support the stability of the ecosystem pending the final transfer of assets.
The rsETH recovery plan is highly dependent on maintaining user trust during this transition phase. Delays in compensation could damage the protocol’s credibility and increase uncertainty in the DeFi markets. Aave seems determined to avoid that outcome.
DeFi Market is keeping a close eye on Aave’s recovery strategy
The crypto industry continues to closely monitor the situation. Many investors see the incident as an important test for decentralized financial infrastructure and crisis management.
The rsETH recovery plan could impact how future protocols handle exploits and asset freezes. The incident combines technical, legal and governance challenges rarely seen together in DeFi. Aave’s response could create a new recovery framework for the sector.
The recovery efforts also highlight the growing interaction between decentralized protocols and traditional legal systems. As DeFi grows, similar legal complications may become more common.
Final thoughts
Aave’s response to the rsETH exploit shows how modern DeFi platforms can simultaneously coordinate technical action, governance decisions, and legal processes. The liquidation of the attacker’s positions, court approval, and planned service restoration all represent important milestones in the ongoing recovery efforts.
The protocol still faces challenges, especially in terms of timing and user trust. However, the structured implementation of the rsETH recovery plan has already mitigated some major risks. Aave now aims to complete asset reallocation and fully normalize operations in the coming weeks.