Aave, Kelp, LayerZero ask Arbitrum DAO to release $71 million in frozen ETH to rsETH recovery effort

A coalition of major DeFi protocols filed a Constitutional AIP on the Arbitrum forum Saturday morning asking the network’s DAO to release roughly $71 million in frozen ETH into DeFi United, the cross-protocol relief effort organized in the wake of last week’s $292 million Kelp DAO exploit.

Aave Labs is listed as the lead author, joined by Kelp DAO, LayerZero, EtherFi, and Compound. The proposal seeks the release of 30,765.67 ETH that the Arbitrum Security Council froze and moved on April 21 after tracing it to addresses controlled by the exploiter. ETH was trading near $2,317 at the time of writing, putting the frozen balance at just over $71.3 million, per The Block’s Ethereum Price page.

Under the proposal, the funds would be sent to a 2-of-3 Gnosis Safe co-signed by Aave, Kelp DAO, and Certora, designated solely to receive recovered ETH and apply it toward restoring rsETH’s economic backing. If the coordinated recovery effort does not proceed as planned, the authors say they will return to Arbitrum governance to determine an alternative use.

Aave announced the filing in a post on X Saturday morning, with Kelp DAO following about half an hour later. “Every ETH released moves rsETH holders closer to whole,” Kelp wrote.

The proposal also reiterates the size of the exploiter’s position on Aave: 89,567 rsETH supplied as collateral against 82,650 WETH and 821 wstETH borrowed across the protocol’s Ethereum Core and Arbitrum V3 markets. It stresses that Aave’s smart contracts were not compromised and that the incident originated outside the protocol, consistent with the lender’s earlier incident review.

49-day timeline

The bigger wrinkle is timing. Constitutional AIPs are Arbitrum’s highest-bar proposal type, and the proposal estimates a timeline of roughly 49 days: a week of forum discussion, an optional one-week temperature check, a three-day voting delay, a 14- to 16-day onchain vote, an eight-day L2 waiting period, an L2-to-L1 message finalization step of typically at least a week, and a final three-day L1 wait before execution.

That clock was already drawing pushback within hours. “Many parties have open positions on AAVE that might run into problem if they have to wait 49 days,” delegate Nicksta wrote in the first reply on the thread, asking whether the process could be expedited.

Griff Green, an Arbitrum Security Council member who publicly defended the council’s freeze decision earlier this week, agreed. Writing in what he stressed was his capacity as a delegate rather than a council member, Green called for moving to a Snapshot vote “as soon as possible to validate the community’s intent and avoid unnecessary delays in unlocking these funds.”

Green also flagged what he called critical open questions before any onchain execution, including the expected outcome for Arbitrum users of Aave, the treatment of users who held rsETH before the exploit, and how losses would be socialized in the event of a partial recovery. The DAO, he wrote, should clearly communicate both full and partial recovery scenarios and the distribution plan under each.

DeFi United

The filing also includes an extensive indemnification clause under which Aave Labs would commit to indemnify the Arbitrum Foundation, Offchain Labs, and each individual member of the Arbitrum Security Council from any claims arising out of the freeze or the proposed release. The agreement, governed by New York law, carries no cap, basket, or deductible, and would cover regulatory inquiries, tokenholder claims, and defense costs.

The 30,766 ETH would be the single largest line item in the running DeFi United tally. Other contributions proposed to date include Aave’s own 25,000 ETH DAO commitment, Lido’s 2,500 stETH, and 5,000 ETH each from EtherFi and Aave founder Stani Kulechov. Mantle has separately proposed a 30,000 ETH credit facility to Aave to absorb any residual bad debt.