Aave, Kelp, LayerZero seek Arbitrum release of $71M frozen ETH

Aave Labs, Kelp DAO, LayerZero, EtherFi, and Compound filed a Constitutional AIP on the Arbitrum forum Saturday morning requesting the network’s DAO release approximately $71 million in frozen ETH to support rsETH recovery efforts, according to The Block. The proposal seeks 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 of Kelp DAO’s $292 million exploit.

Proposal Details and Fund Management

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

The proposal reiterates the exploiter’s position on Aave: 89,567 rsETH supplied as collateral against 82,650 WETH and 821 wstETH borrowed across Aave’s Ethereum Core and Arbitrum V3 markets. Aave stressed that its smart contracts were not compromised and that the incident originated outside the protocol.

If the coordinated recovery effort does not proceed as planned, the proposal authors stated they would return to Arbitrum governance to determine an alternative use for the funds.

Constitutional AIP Timeline and Community Response

Constitutional AIPs represent 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 forum, noting that “many parties have open positions on AAVE that might run into problem if they have to wait 49 days,” and asked whether the process could be expedited.

Griff Green, an Arbitrum Security Council member, agreed with calls 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 onchain execution, including the expected outcome for Arbitrum users of Aave, treatment of users who held rsETH before the exploit, and how losses would be socialized in the event of partial recovery.

Indemnification Clause 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 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.

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