Aave Proposes Transferring 30,000 ETH from Kelp Exploiter to 'DeFi United' Recovery Fund

Aave Proposes Transferring 30,000 ETH from Kelp Exploiter to 'DeFi United' Recovery Fund

Aave Labs has submitted a governance proposal requesting that the Arbitrum decentralized autonomous organization release $73.5 million in frozen Ether connected to the Kelp DAO breach and redirect the assets toward "DeFi United," an initiative focused on restoring the rsETH token and compensating affected holders.

The Arbitrum Security Council previously froze 30,765 ETH stored in an account linked to the $293 million Kelp exploit. In a proposal shared on Saturday through the Arbitrum governance forum, Aave Labs argued that channeling these resources into the planned recovery initiative would "restore normal conditions for Arbitrum users" and strengthen the broader ecosystem. The frozen Ether on the Arbitrum network, according to the submission, would represent a "significant contribution" to rehabilitating the Kelp DAO restaked ETH token.

The proposal carries backing from Kelp DAO, LayerZero, Ether.fi and Compound—all among the numerous protocols impacted by the breach.

DeFi United Accumulates $21 Million in Pledges

The initiative was formally launched on Friday by Aave Labs and collaborating organizations with the objective of fully restoring rsETH's collateral backing. Based on Dune Analytics, approximately $21 million in commitments have been deposited, sourced from contributors including Aave Labs CEO Stani Kulechov, Aave Labs contracts chief Emilio Frangella, Kelp DAO, Golem Foundation, BGD Labs and Babylon.

An additional $215 million has been pledged by Arbitrum, Mantle, Ether.fi and Lido to facilitate the recovery, though these commitments remain subject to governance approval. LayerZero, Ethena, Ink Foundation and Frax Finance have also expressed commitment to participating.

Aave Faces Substantial Losses from the Breach

The Kelp DAO exploit caused severe damage to Aave's position, with the protocol experiencing a decline of nearly $12 billion in total value locked within one week. The attacker transferred stolen rsETH tokens to Aave's lending platform as collateral to extract wrapped Ether, resulting in over $190 million in uncovered liabilities and sparking significant user withdrawals.

Seven-Week Recovery Timeline Outlined

In the governance submission, Aave Labs emphasized that complete restoration would not just repair rsETH's financial backing but also bring stability to token holders, liquidity suppliers and borrowers operating on Arbitrum and throughout the wider DeFi sector. The organization noted that even a "partial recovery would meaningfully decrease the deficit."

Aave Labs has explicitly requested the 30,765 Ether be transmitted to a recovery wallet jointly administered by Aave, Kelp DAO and security auditor Certora. The organization anticipates the restoration and compensation process to span approximately 49 days, with assurances to return the funds should the recovery initiative prove unsuccessful.