Aave Labs Proposes Releasing $73.5 Million Frozen on Arbitrum for Kelp DAO Recovery

Suehyeon Lee

Summary

Aave Labs said it asked the Arbitrum governance forum to release about 30,765 ETH (about $73.5 million) and transfer the assets to recovery fund DeFi United.
DeFi United has raised about $21 million so far, while Arbitrum, Mantle (MNT) and Lido (LDO) have indicated they could provide an additional $215 million, pending governance approval.
The hack left Aave with more than $190 million in bad debt and a sharp drop in TVL, while Aave Labs outlined a recovery plan spanning about 49 days to help restore rsETH’s collateral value and normalize the ecosystem.

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Aave Labs, the developer of decentralized finance lending protocol Aave, has proposed using funds frozen in connection with the Kelp DAO hack for recovery efforts.

Cointelegraph reported on April 27 that Aave Labs asked the Arbitrum governance forum to release about 30,765 ETH, worth roughly $73.5 million, and transfer the assets to recovery fund DeFi United.

Arbitrum’s Security Council had previously frozen the Ether held in a wallet tied to the Kelp DAO hack. Aave Labs wrote that using the funds to restore rsETH collateral and compensate victims could help normalize activity for Arbitrum users and the broader ecosystem.

The proposal was submitted with support from major affected protocols including Kelp DAO, LayerZero, Ether.fi and Compound.

DeFi United is a joint recovery fund recently launched to restore rsETH collateral. On-chain data shows the fund has raised about $21 million so far. Major projects including Arbitrum, Mantle and Lido have also signaled willingness to provide an additional $215 million in support, though those funds still require governance approval.

Aave was hit hard by the hack. The attacker used stolen rsETH as collateral to borrow wrapped Ether, or wETH, leaving more than $190 million in bad debt. Large outflows followed, driving a sharp drop in total value locked, or TVL.

Aave Labs also outlined a recovery timeline of about 49 days in the proposal. The process would be carried out through a wallet jointly managed by Aave, Kelp DAO and blockchain security firm Certora.

Aave Labs said that a full recovery would restore rsETH’s collateral value and help normalize the broader ecosystem. Partial recovery would still reduce losses in a meaningful way.