Lending platform Aave has reinstated the collateral rates for wrapped ether (WETH) to their previous levels on six leading blockchain networks, following an April exploit that triggered substantial losses and led to emergency restrictions. Aave, a prominent decentralized finance (DeFi) protocol, enables users to borrow and lend a range of digital assets by pledging them as collateral.
WETH regains its vital place in DeFi
WETH, a tokenized version of ether, serves a crucial role as liquid collateral in DeFi applications. In April, a bridge attack linked to Kelp DAO’s yield-generating rsETH token resulted in the unauthorized creation of approximately $292 million in tokens. Attackers used these tokens as collateral to withdraw $230 million in ETH from Aave, causing significant disruption to the protocol.
During the incident, Aave’s governance responded with immediate measures, slashing WETH collateral rates to zero. This move effectively made it impossible for users to leverage WETH for borrowing, aimed at containing systemic risk. However, this restriction also severely tightened liquidity and leverage access across DeFi markets.
Collateral rates return to normal
According to Aave governance documentation, the original collateralization rates have now been fully restored. Specifically, the collateral rates are set at 80.5% on Ethereum Core, 84% on Ethereum Prime, 80% on Arbitrum, 80.5% on Base, 80.5% on Mantle, and 80% on Linea.
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AAPLThe restoration of collateral rates to former levels suggests that Aave’s governance considers market risks to be largely under control. Nonetheless, legal ambiguity around frozen assets and outstanding liabilities remains unresolved.
A total of roughly 112,103 invalid rsETH tokens were created in the exploit. Of these, 89,567 were recovered via Aave, and another 17,426 through the Compound protocol, bringing the total reclaimed to 106,993 tokens. The remaining 5,200 tokens are expected to be absorbed by the industry coalition DeFi United.
Market normalization underway
Within DeFi markets, WETH is viewed as one of the primary vehicles for leveraged trading and liquidity provisioning. The emergency measures that barred users from deploying WETH as collateral left investors unable to maximize their capital efficiency, suppressing overall liquidity in the ecosystem.
With the reinstatement of WETH collateralization, signals of a return to business as usual are emerging. For borrowers, the development marks a renewed opportunity to deploy leverage and liquidity strategies vital to DeFi activity.
This episode also serves as a high-profile case study on how major DeFi protocols respond to attacks and manage crises. Attention has now shifted toward how unresolved asset deficits will be addressed, and how debates around systemic risk in DeFi will progress.
