Aave Labs proposes for Arbitrum: unlock 30,765 ETH in compensation for victims

According to a proposal published by Aave Labs in the Arbitrum governance forum on April 25, Aave Labs is asking the Arbitrum decentralized autonomous organization (DAO) to unfreeze 30,765 ETH related to the Kelp DAO attack and to transfer the aforementioned funds to the “DeFi United” recovery fund, to restore support for rsETH and compensate holders.

Aave Labs Arbitrum Proposal Details

According to a proposal published by Aave Labs on April 25 (Saturday) in the Arbitrum governance forum, the Arbitrum Security Council last week froze 30,765 ETH held in wallets associated with the $293 million Kelp vulnerability.

In the proposal, Aave Labs said that using the above funds for the planned remediation will “restore Arbitrum users and the broader ecosystem to normal,” and pointed out that the ETH on Arbitrum “represents a substantive contribution toward restoring the Kelp DAO’s re-staking of the ETH (rsETH) token.”

Aave Labs specifically requested that the 30,765 ETH be sent to a recovery address jointly controlled by Aave, Kelp DAO, and the blockchain security platform Certora. The proposal has received support from Kelp DAO, LayerZero, EtherFi, and Compound; LayerZero, Ethena, Ink Foundation, and Frax Finance have also indicated they are willing to provide assistance.

DeFi United Funding Status

According to data from Dune Analytics, DeFi United has received roughly $21 million in donations, with donors including Aave Labs CEO Stani Kulechov, Aave Labs contract lead Emilio Frangella, Kelp DAO, Golem Foundation, Web3 development platform BGD Labs, and the Bitcoin-native DeFi protocol Babylon.

Arbitrum, Mantle, Ether.Fi, and Lido have also pledged to provide a total of $215 million, but the funds will only be disbursed after their respective governance votes are approved.

Impact of the Kelp DAO Attack on Aave and Recovery Timeline

According to public reporting, during the Kelp DAO attack, the hacker deposited the stolen rsETH tokens as collateral into the Aave lending platform and borrowed ETH, causing Aave’s total value locked (TVL) to drop by about $12 billion within a week, resulting in over $190 million in bad debt and triggering a large-scale withdrawal run.

Per Aave Labs’ proposal, the work to restore rsETH and compensate holders is expected to take about 49 days; if the recovery effort fails, the related funds will be returned. Aave Labs also added that even partial recovery can “significantly reduce the gap.”

Frequently Asked Questions

What are the core demands of Aave Labs’ proposal in the Arbitrum governance forum?

According to the proposal published by Aave Labs on April 25 in the Arbitrum governance forum, Aave Labs is asking the Arbitrum DAO to unfreeze 30,765 ETH (current value of about $73.5 million), allocate the related funds to the DeFi United recovery fund, and send them to a recovery address jointly controlled by Aave, Kelp DAO, and Certora.

What is the current funding size of the DeFi United fund?

According to Dune Analytics data, DeFi United has received about $21 million in donations. In addition, Arbitrum, Mantle, Ether.Fi, and Lido have jointly pledged $215 million, which needs to be disbursed after each party’s governance vote is approved.

How long is Aave Labs expecting the rsETH recovery work to take?

According to Aave Labs’ proposal in the Arbitrum governance forum, the work to restore rsETH and compensate holders is expected to take about 49 days; if the recovery effort fails, the related funds will be returned.