Aave Unfreezes V3 Reserves, Keeps LTV at Zero Temporarily
Key Facts
Aave has unfrozen all affected V3 reserves while temporarily keeping loan-to-value ratios at zero, according to a LlamaRisk update published on October 30. The move was part of a four-wave recovery plan that included setting the collateral factor for specified V4 assets to zero, before restoring loan-to-value ratios for most V3 reserves and unfreezing V4 reserves in a later wave. The restrictions allow the specified assets to be supplied, withdrawn, borrowed and repaid, but prevent their use as collateral from adding new borrowing capacity. LlamaRisk said, "Supplying, withdrawing, borrowing and repaying them are functioning normally." The unfreezing restored the functions of the reserves while restrictions on the role of some assets as collateral remain in place.
The freeze measures began after Aave’s team concluded that the exploiter could swap the stolen funds for any listed asset, and that freezing only the stolen token’s reserves would leave other paths open. The measure covered 175 V3 reserves across 16 networks and 117 V4 reserves across four networks. The freeze transactions were executed on October 29 between 21:42 and 23:04 UTC, according to LlamaRisk. During the freeze, opening new supply or borrowing positions was unavailable, while withdrawals, repayments and liquidations continued. The Horizon real-world asset market was excluded because its collateral is permissioned and the exploiter could not use it, and LlamaRisk said no market was fully halted.
LlamaRisk estimated the value of the borrowed cryptocurrency at about $44.6 million at the time of borrowing. It described the position as overcollateralized and said it did not put Aave liquidity providers at risk. Risk-control measures also reduced unused borrowing capacity by about $3.7 billion in V3 and $130 million in V4. LlamaRisk said reducing unused capacity limits its return all at once when markets reopen.
Binance said the incident’s total impact was estimated at about $6.3 billion, and that its partners had frozen about $3 billion in on-chain assets as of its October 30 update. In a later update issued on October 31, the platform said coverage had risen from about 80% to 90% of losses, and that it would continue buying the remaining tokens and absorb the financial impact rather than pass it on to users. It added that the 10 tokens it identified were fully backed at 100%, and that the remaining 10% consisted of tokens outside the top ten listed assets, which are less liquid and may take longer to buy. The company said it had found no evidence of private wallet keys being leaked. It said its preliminary investigation pointed to the possibility that a compromised DevOps engineer’s computer was involved, and that it would publish a technical report after the investigation was complete and the facts had been verified.
Binance said it had taken a new proof-of-reserves snapshot at 00:00 UTC on October 31, adding that generating the complete zero-knowledge proof takes about 40 to 50 hours. The company estimated it would be completed by November 3, allowing users of the 10 tokens to verify that their balances are backed at a ratio of at least 1:1. Meanwhile, it said it was targeting Sunday, November 1, for the resumption of withdrawal services and would issue a further update after confirming the details. Circle had said it froze more than $800 million worth of assets linked to the incident in coordination with law enforcement, while Tether’s CEO announced the freezing of more than $1.5 billion in related tokens. The Associated Press reported that Bitcoin fell 3.2% on the evening of October 29 to below $79,000.
For assets linked to Aave, LlamaRisk said ETH and BTC had fallen about 4% since the funds were withdrawn, while AAVE and LINK were down about 9%, UNI about 8% and ARB about 6%, as of 00:55 UTC in its October 30 update. EL7 data showed AAVE closed at $119.35 on October 29, then at $129.16 on October 30 and $135.28 on October 31. LlamaRisk said it would monitor the exploiter’s wallets and price feeds, and assess the order for unfreezing in coordination with Aave Labs and other service providers. Its update had linked the continuation of the freeze to a halt in the exploiter’s fund movements and clarity on Binance’s containment measures. Binance, meanwhile, set November 1 as its target date for resuming withdrawals and expected the proof of reserves to be completed on November 3.