The decentralized finance (DeFi) protocol Aave has announced the start of Phase II in the rsETH recovery process following the liquidation of the attacker’s position on Aave V3 on May 6, 2026. The move marks an important step in restoring the ecosystem after an incident that caused an imbalance in rsETH supply and disrupted user withdrawal operations.

In its official update, Aave stated that the recovery process has now entered an advanced stage after part of the funds were successfully secured. Previously, approximately US$71 million worth of ETH was recovered and is planned to be returned to users through a decision by Arbitrum DAO.

Attacker Position on Aave V3 Has Been Liquidated

According to Aave, the attacker’s position on Aave V3 was officially liquidated on May 6. The liquidation was carried out as part of the protocol’s mechanism to maintain market health and limit systemic risks to the lending ecosystem.

However, the recovered US$71 million in ETH was temporarily frozen. This occurred due to a claimant holding a court judgment related to North Korea, preventing the assets from being immediately redistributed to users.

Aave explained that the court has now authorized the frozen assets to be transferred to Aave LLC. This decision clears the way for fund distribution and liquidity recovery that had previously been delayed by legal proceedings.

To maintain operational stability during the legal process, Aave will also borrow temporary funds to cover liquidity shortfalls until the recovered assets can officially be returned.

Aave to Burn rsETH to Stabilize Supply

As part of Phase II of the recovery effort, Aave stated that it will burn the rsETH obtained from the liquidation process. The measure is intended to reduce the rsETH supply that increased due to the attacker’s previous activities.

According to the Aave team, the token burn aims to help restore supply balance and support ecosystem stability. In addition, asset withdrawals through the bridge will gradually be restored until operations return to full normalcy.

This approach is considered important for reducing pressure on liquidity while also rebuilding user confidence in the affected system.

Impact on the DeFi Ecosystem and Users

The rsETH case once again highlights the significant security and liquidity challenges within the DeFi sector, particularly for protocols involving cross-chain integrations and complex leverage mechanisms.

Although most of the funds were successfully secured, the legal process involving assets tied to international sanctions demonstrates that crypto-related incidents are no longer solely technical issues, but also involve regulatory and global compliance considerations.

On the other hand, the decision by Arbitrum DAO to support reimbursing affected users is viewed as a positive step in maintaining community trust in the DeFi ecosystem. Aave’s swift response in liquidating the attacker’s position, burning tokens, and providing temporary liquidity has also been seen as crucial in limiting broader market impact.

With Phase II of the rsETH recovery now underway, Aave’s primary focus is restoring full withdrawal functionality and ensuring ecosystem stability amid ongoing legal proceedings.