Aave, Kelp, LayerZero Seek $71M Frozen ETH Release on Arbitrum

A coalition of major DeFi protocols including Aave Labs, Kelp DAO, LayerZero, EtherFi, and Compound filed a Constitutional AIP on the Arbitrum forum Saturday requesting the network’s DAO release approximately $71 million in frozen ETH for the rsETH recovery effort known as DeFi United. The Arbitrum Security Council froze 30,765.67 ETH on April 21 after tracing it to addresses controlled by the exploiter responsible for the $292 million Kelp DAO exploit, according to The Block.

Proposal Details

Aave Labs is listed as the lead author of the proposal. Under the terms, the frozen 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 proposal 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.

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

Governance Timeline and Community Concerns

Constitutional AIPs are Arbitrum’s highest-bar proposal type, and the proposal estimates a timeline of approximately 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 immediate pushback. Delegate Nicksta raised concerns within hours of the filing, 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 who publicly defended the council’s freeze decision earlier in the week, agreed with the need for acceleration. 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 proposal 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 covers regulatory inquiries, tokenholder claims, and defense costs.

The 30,766 ETH represents 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.