Aave Labs has proposed that the DAO behind Arbitrum unfreeze $73.5 million worth of Ether linked to the Kelp DAO exploit and redirect the funds to “DeFi United,” a recovery initiative designed to restore rsETH and compensate affected holders.
Last week, Arbitrum’s Security Council froze 30,765 ETH held in a wallet associated with the $293 million Kelp hack.
In a proposal published Saturday on Arbitrum’s governance forum, Aave Labs argued that reallocating the funds to a coordinated remediation plan would help “restore normal conditions” for users and the broader ecosystem. It added that the frozen Ether represents a significant contribution toward rebuilding the Kelp DAO’s restaked ETH (rsETH) token.
The proposal is backed by Kelp DAO, LayerZero, Ether.fi and Compound, all of which were among the protocols impacted by the exploit.
The initiative follows the launch of “DeFi United” on Friday by Aave Labs and partners, aiming to fully recapitalize rsETH. According to Dune Analytics, the fund has already attracted around $21 million in contributions, including from Aave Labs CEO Stani Kulechov, head of contracts Emilio Frangella, Kelp DAO, the Golem Foundation, BGD Labs and Babylon.
An additional $215 million has been pledged by Arbitrum, Mantle, Ether.fi and Lido, pending governance approvals.
Other protocols, including LayerZero, Ethena, Ink Foundation and Frax Finance, have also expressed support for the recovery effort.
Aave was among the hardest hit by the Kelp DAO exploit, with its total value locked dropping by nearly $12 billion in just a week. The decline followed the attacker using stolen rsETH as collateral on Aave’s lending platform to borrow wrapped Ether, leaving the protocol with over $190 million in bad debt and sparking a surge in withdrawals.
Aave outlines seven-week recovery plan
In its proposal to Arbitrum, Aave Labs said a full recovery would not only restore rsETH’s backing but also stabilize conditions for token holders, liquidity providers and borrowers across Arbitrum and the wider DeFi ecosystem. Even a partial recovery, it noted, would significantly reduce the deficit.
Aave Labs has requested that the 30,765 Ether be transferred to a recovery address jointly managed by Aave, Kelp DAO and blockchain security firm Certora.
The firm estimates the recovery process will take around 49 days and has committed to returning the funds if the plan does not proceed.
