Aave seeks Arbitrum release of 30,765 ETH to DeFi United

Aave Labs has proposed that the Arbitrum DAO unfreeze 30,765 Ether, roughly $73.5 million, linked to the $293 million Kelp hack and redirect the funds to a recovery fund called DeFi United. The Arbitrum Security Council froze the Ether last week.

The proposal, posted on the Arbitrum governance forum, requests the transfer to a recovery address controlled jointly by Aave, Kelp DAO and blockchain security firm Certora. The submission lists support from Kelp DAO, LayerZero, Ether.fi and Compound among the affected protocols.

DeFi United was formed last Friday by Aave Labs and partners to restore backing for the Kelp DAO restaked ETH token, rsETH, and to compensate holders. Dune Analytics shows about $21 million in contributions so far from Aave Labs CEO Stani Kulechov, Aave Labs head of contracts Emilio Frangella, Kelp DAO, Golem Foundation, BGD Labs and Babylon.

Arbitrum, Mantle, Ether.fi and Lido have pledged about $215 million in additional support, subject to governance approvals. LayerZero, Ethena, Ink Foundation and Frax Finance have also indicated plans to help.

The proposal sets a seven-week timeline, about 49 days, for the recovery effort and states the funds would be returned if the restoration attempt fails. It adds that even a “partial recovery would still meaningfully reduce the shortfall.”

The Kelp DAO exploit affected multiple lending and staking protocols. The attacker placed stolen rsETH tokens as collateral on Aave to borrow wrapped Ether, creating more than $190 million in bad debt and triggering withdrawals that reduced Aave’s total value locked by nearly $12 billion in a week.

The proposal says restoring rsETH’s backing would normalize conditions for rsETH holders, liquidity providers and borrowers on Arbitrum and across decentralized finance. The Arbitrum governance process will determine whether the frozen Ether is redirected to DeFi United; if approved, the transfer would be combined with existing contributions and pledged support to attempt to make rsETH whole and compensate affected users within the proposed seven-week window.