Aave, Kelp, LayerZero Seek $71M ETH Release for rsETH Recovery

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 following 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.

Proposal Details

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 stated they will return to Arbitrum governance to determine an alternative use.

The proposal 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. Aave stressed that its smart contracts were not compromised and that the incident originated outside the protocol.

49-Day Timeline and Community Concerns

Constitutional AIPs are Arbitrum’s highest-bar proposal type. 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.

The extended timeline drew pushback within hours of filing. Delegate Nicksta raised concerns in the first forum reply, noting that “many parties have open positions on AAVE that might run into problem if they have to wait 49 days” and asking whether the process could be expedited.

Griff Green, an Arbitrum Security Council member, agreed in his response. Writing in 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 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.

Indemnification and DeFi United Contributions

The filing 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.