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<p><strong>Aave has moved into Phase II of its rsETH recovery plan following the liquidation of attacker-linked positions, marking the next step in the protocol's response to the Kelp DAO exploit that impacted rsETH backing.</strong></p>
<p>The transition was formalized through <a href="https://vote.onaave.com/proposal/?ipfsHash=0x73d6b6ffb8c006af7464dc28e66df897bea1b011662efaa209c7503736612881&amp;proposalId=477" rel="noopener noreferrer nofollow">Aave governance proposal #477</a>, which outlined the operational steps required to proceed after attacker positions were cleared from the protocol.</p>
<h2 id="what-triggered-aave-s-phase-ii-rseth-recovery">What Triggered Aave's Phase II rsETH Recovery</h2>
<p>Phase II follows the completion of attacker position liquidations on Aave's lending markets. The liquidation of these positions was a prerequisite established during Phase I, which focused on containing immediate risk exposure tied to the exploit.</p>
<p>The exploit itself targeted Kelp DAO's rsETH, with <a href="https://unchainedcrypto.com/defi-united-releases-technical-plan-to-restore-rseth-backing-after-292-million-kelp-dao-exploit/" rel="noopener noreferrer nofollow">DeFi United releasing a technical plan</a> to restore rsETH backing after what it described as a $292 million incident. The recovery effort has involved coordination between Aave governance, Kelp DAO, and DeFi United.</p>
<div>
 <p>TLDR KEYPOINTS</p>
 <ul>
  <li>Aave governance approved Phase II of the rsETH recovery plan via Proposal #477</li>
  <li>Attacker-linked positions on Aave were fully liquidated, clearing the path forward</li>
  <li>DeFi United published a technical restoration plan following the $292 million Kelp DAO exploit</li>
 </ul>
</div>
<h3 id="liquidation-outcome">Liquidation Outcome</h3>
<p>The liquidation of attacker-controlled positions removed the immediate protocol risk that had prompted emergency measures during Phase I. With those positions closed, Aave's rsETH markets are no longer directly exposed to the exploiter's collateral.</p>
<h3 id="governance-handoff">Governance Handoff</h3>
<p>The governance proposal signals a shift from emergency response to structured recovery. Aave's decentralized governance process now oversees the remaining steps, with the proposal passing through the protocol's standard voting mechanism on the <a href="https://vote.onaave.com/" rel="noopener noreferrer nofollow">Aave governance portal</a>.</p>
<h2 id="what-phase-ii-changes-for-rseth-markets-and-aave-users">What Phase II Changes for rsETH Markets and Aave Users</h2>
<p>With attacker positions cleared, the immediate concern for Aave users shifts from exploit-related contagion risk to the practical process of restoring normal rsETH market conditions.</p>
<h3 id="why-liquidation-completion-matters">Why Liquidation Completion Matters</h3>
<p>While attacker positions remained open, they represented a source of unpredictable selling pressure and collateral instability. Their liquidation removes that overhang, allowing pool parameters and risk settings to be evaluated against normal market conditions rather than exploit-driven distortions.</p>
<h3 id="borrower-and-supplier-impact">Borrower and Supplier Impact</h3>
<p>Users with active rsETH positions on Aave should monitor any parameter changes that governance implements as part of Phase II. Pool caps, liquidation thresholds, and interest rate curves may be adjusted as the protocol transitions back to standard operations. In the broader DeFi landscape, events like <a rel="noopener noreferrer nofollow">Bybit's recent delisting of SYN from futures trading</a> underscore how protocols and exchanges respond swiftly to risk events.</p>
<h2 id="what-to-watch-before-recovery-is-fully-closed">What to Watch Before Recovery Is Fully Closed</h2>
<p>Phase II is not the final step. Several conditions must be met before the rsETH recovery can be considered complete.</p>
<h3 id="near-term-checkpoints">Near-Term Checkpoints</h3>
<ul>
 <li>Execution of the technical restoration plan published by DeFi United</li>
 <li>Full restoration of rsETH backing to pre-exploit levels</li>
 <li>Any additional governance proposals adjusting Aave risk parameters</li>
 <li>Confirmation that no residual attacker positions remain across related protocols</li>
</ul>
<h3 id="completion-signals">Completion Signals</h3>
<p>Normalization would be indicated by rsETH returning to its expected peg, Aave risk parameters reverting to standard settings, and no further emergency governance actions being required. Users should track Aave governance proposals and DeFi United updates for progress on the restoration timeline.</p>
<p>The structured, multi-phase approach reflects a pattern increasingly common in DeFi incident response, where protocols compartmentalize recovery into discrete, governable steps rather than attempting a single corrective action.</p>
<p>Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Cryptocurrency and digital asset markets carry significant risk. Always do your own research before making decisions.</p><a href="https://defiliban.io/?p=9311" rel="noopener noreferrer nofollow">Read original article on defiliban.io</a>

Aave Starts Phase II of rsETH Recovery After Liquidations

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