Aave Asks Arbitrum to Unfreeze Stolen Kelp DAO Funds

Aave Labs has proposed that the decentralized autonomous organization behind Arbitrum unfreeze $73.5 million in Ether tied to the Kelp DAO attack and to direct those funds to “DeFi United,” a fund aimed at restoring rsETH and compensating its holders.

Last week, the Arbitrum Security Council moved to freeze 30,765 Ether (ETH) held in a wallet connected to the $293 million Kelp exploit. 

In a proposal posted Saturday on the Arbitrum governance forum, Aave Labs said directing those funds to a planned remediation effort would “restore normal conditions for Arbitrum users” and the wider ecosystem and that the Ether on Arbitrum “represents a material contribution” toward restoring the Kelp DAO restaked ETH (rsETH) token.

The submission was made with the support of Kelp DAO, LayerZero, Ether.fi and Compound, four of the several crypto protocols affected by the hack.

DeFi United sees $21 million in contributions

The proposal comes days after Aave Labs and others set up the “DeFi United” on Friday in an effort to fully restore the backing of rsETH.

Dune Analytics data shows that about $21 million in contributions has already been made, with contributions including those from Aave Labs CEO Stani Kulechov, Aave Labs head of contracts Emilio Frangella, Kelp DAO, Golem Foundation, Web3 development platform BGD Labs and Babylon, a Bitcoin-native DeFi protocol.

Another $215 million has been pledged by Arbitrum, Mantle, Ether.fi and Lido to assist the recovery effort, which are subject to governance votes.

LayerZero, Ethena, Ink Foundation and Frax Finance have also signaled their intention to help.

Source: Aave

Aave was hit hard by the Kelp DAO exploit, with its total value locked falling nearly $12 billion in a week after the hacker put the stolen rsETH tokens up as collateral on its lending platform to borrow wrapped Ether, leaving more than $190 million in bad debt and triggering a wave of withdrawals. 

Aave sets a seven-week timeline for the recovery plan

In the Arbitrum proposal, Aave Labs said a full recovery would not only restore rsETH’s backing but also normalize conditions for its holders, liquidity providers and borrowers on Arbitrum and across the broader DeFi ecosystem.

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Even a “partial recovery would still meaningfully reduce the shortfall,” Aave Labs added.

Aave Labs has specifically asked for the 30,765 Ether to be sent to a recovery address controlled by Aave, Kelp DAO and blockchain security platform Certora. 

Aave Labs said it expects the effort to restore rsETH and compensate its holders to take about 49 days and that it would return the funds if the recovery effort falls through.

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