Aave Labs Urges Arbitrum DAO to Release $73 Million in Frozen ETH for rsETH Recovery

Aave Labs has proposed that Arbitrum, which is a decentralised autonomous organisation (DAO), shall unfreeze $73.5 million (roughly Rs. 692.37 crore) in Ethereum tied to the Kelp DAO attack and direct those funds to a fund called “DeFi United,” which has a core objective of restoring rsETH and compensating its holders. The proposal says that the funds would go to a 2-of-3 Gnosis Safe signed by Aave, Kelp DAO, and Certora. This safe would only be able to receive recovered ETH and use it to restore rsETH's economic backing.

Governance Decision Could Shape Recovery Timeline for rsETH

In this proposal, Aave Labs has ensured that a full recovery would not only restore rsETH's backing but also assist in normalising conditions for its holders, liquidity providers, and borrowers on Arbitrum and other DeFi protocols. Aave Labs is listed as the lead author, followed by Kelp DAO, LayerZero, EtherFi, and Compound. Aave Labs added that it would take around 49 days to restore rsETH and compensate its holders, provided the recovery efforts fall through.

Data by Dune Analytics shows that around $21 million (roughly Rs. 197.82 crore) in contributions have already been made, which includes contributions 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. Arbitrum, Mantle, Ether.fi, and Lido have also pledged another $215 million (roughly Rs. 2,025.30 crore) to assist the recovery effort, which is subject to governance votes.

Aave Labs has also ensured that these funds will solely be used for the remediation of losses arising from the exploit and further added that “If the coordinated recovery effort does not proceed as planned, the parties will return to Arbitrum Governance for further direction on the preferred use of funds.” Later in a post on X, the DeFi organisation said, “The proposal is open for review, and we welcome feedback from the Arbitrum community.”

Last week, Hackers had managed to steal 116,500 Kelp DAO Restaked ETH tokens from the company's LayerZero-powered bridge, then used them as collateral on Aave v3 to borrow wrapped Ether, resulting in about $195 million (roughly Rs. 1,838.46 crore) in bad debt on Aave. Following this incident, DeFi protocols came together in an attempt to rectify this situation and restore the backing of Restaked Ether (rsETH).