Aave Pushes Arbitrum to Release Frozen $73M ETH Post-Kelp Hack

Aave Labs has formally requested that Arbitrum’s decentralized governance unfreeze $73.5 million in Ether (ETH) tied to the April 18 Kelp DAO exploit. The funds, currently locked by the Arbitrum Security Council, are intended to be redirected to “DeFi United,” a recently established recovery fund aimed at compensating holders of rsETH, the hacked restaked Ether token.

The Kelp DAO hack, which drained $292 million in rsETH, exploited vulnerabilities in the DAO’s cross-chain bridge infrastructure. Attackers, reportedly linked to North Korea’s Lazarus Group, exploited weak verifier configurations to manipulate the bridge and steal funds. A portion of the stolen ETH—30,765 ETH—was frozen by Arbitrum on April 21 to prevent further laundering and damage to the ecosystem.

Aave’s Proposal and DeFi United’s Recovery Efforts

In a governance proposal posted on April 26, Aave Labs outlined a plan for the frozen ETH to be sent to a recovery address co-managed by Aave, Kelp DAO, and security platform Certora. DeFi United, the recovery fund launched just days ago, has already secured $21 million in pledges from contributors like Aave Labs CEO Stani Kulechov, LayerZero, and the Golem Foundation. If approved, the funds would help restore rsETH’s 1:1 backing and support liquidity providers and borrowers impacted by the hack.

Additionally, larger pledges—totaling $215 million—have been made by Arbitrum, Mantle, and Lido, though these are subject to governance votes. Aave Labs emphasized that even a partial recovery would significantly reduce the shortfall caused by the hack. They’ve set a seven-week timeline for the recovery process, promising to return unused funds if the effort falls short.

Wider Implications for DeFi and Aave

The Kelp DAO hack sent shockwaves through the DeFi sector. Aave, one of the hardest-hit protocols, saw its total value locked (TVL) drop nearly $12 billion within a week after the attacker used stolen rsETH as collateral to borrow wrapped ETH, leaving Aave with $190 million in bad debt. Activity across Arbitrum and other impacted platforms has been hampered as liquidity providers and market participants reassess risk.

ETH prices, however, appear resilient. As of April 27, ETH is trading at $2,360.33, up 1.71% in the past 24 hours. The broader market seems largely unaffected, indicating market participants are treating the hack as an isolated event rather than a systemic failure of DeFi infrastructure.

Next Steps

Aave’s proposal now awaits a governance vote within the Arbitrum ecosystem. If approved, DeFi United would gain access to the frozen ETH, accelerating the recovery process. The decision could set a precedent for how decentralized organizations respond to sophisticated exploits and balance security with restorative measures.

With a tight timeline and significant sums at stake, the coming weeks will be critical for Kelp DAO, Aave, and the broader DeFi market. Traders and stakeholders will be watching for the governance outcome and its impact on ecosystem trust.

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