Aave Proposes Recovery Plan for $73.5 Million in Ether Post-Kelp Attack
By John Nada·Apr 27, 2026·4 min read
Aave Labs proposes unfreezing $73.5 million in Ether to aid recovery from the Kelp DAO attack, signaling a collaborative push in DeFi resilience.
Aave Labs has proposed that the decentralized autonomous organization behind Arbitrum unfreeze $73.5 million in Ether tied to the Kelp DAO attack and to direct those funds to “DeFi United,” a fund aimed at restoring the backing of the restaked ETH (rsETH) token and compensating its holders.
Last week, the Arbitrum Security Council moved to freeze 30,765 Ether (ETH) held in a wallet connected to the $293 million Kelp exploit. The attack has sent ripples across the decentralized finance (DeFi) ecosystem, highlighting vulnerabilities within the sector that have long been a concern for users and developers alike. In a proposal posted Saturday on the Arbitrum governance forum, Aave Labs stated that directing those funds to a planned remediation effort would “restore normal conditions for Arbitrum users” and the wider ecosystem. This is particularly significant, as the Ether on Arbitrum “represents a material contribution” toward restoring the Kelp DAO rsETH token, which is vital for maintaining trust among users in the DeFi space.
The submission was made with the support of Kelp DAO, LayerZero, Ether.fi, and Compound, four of the several crypto protocols affected by the hack. This collaboration illustrates a united front among different protocols in the wake of the exploit, emphasizing the importance of community and cooperative efforts in mitigating damage and fostering recovery.
DeFi United, the newly established initiative, aims to fully restore the backing of rsETH, which has been a crucial asset for many users within the ecosystem. Dune Analytics data shows that about $21 million in contributions has already been made, with significant contributions from key stakeholders including Aave Labs CEO Stani Kulechov, Aave Labs head of contracts Emilio Frangella, Kelp DAO, Golem Foundation, Web3 development platform BGD Labs, and Babylon, a Bitcoin-native DeFi protocol. This early support indicates a strong commitment from various sectors of the crypto community to come together during challenging times.
In addition to the initial contributions, another $215 million has been pledged by Arbitrum, Mantle, Ether.fi, and Lido to assist the recovery effort, although these funds are subject to governance votes from the respective organizations involved. This multi-layered funding approach is essential as it not only provides immediate resources for recovery but also encourages broader participation and consensus in the decision-making process.
LayerZero, Ethena, Ink Foundation, and Frax Finance have also signaled their intention to help, showcasing a collective effort that transcends individual protocols. This collaborative spirit is crucial in a decentralized system where the interconnectedness of various projects can either lead to a cascading failure or, conversely, a robust recovery.
Aave was hit hard by the Kelp DAO exploit, with its total value locked suffering a staggering decline of nearly $12 billion in just one week. The hack involved the exploitation of the rsETH tokens, which were then used as collateral on Aave's lending platform to borrow wrapped Ether, resulting in over $190 million in bad debt and triggering a wave of withdrawals. These developments have raised alarm bells in the DeFi community, emphasizing the fragility of smart contracts and the need for improved security measures.
In the Arbitrum proposal, Aave Labs outlined a timeline of approximately 49 days for a full recovery, underscoring the urgency of the situation while also providing a structured plan for regaining stability. The goal is not only to restore rsETH’s backing but also to normalize conditions for its holders, liquidity providers, and borrowers on Arbitrum and across the broader DeFi ecosystem. Such a recovery would help to rebuild trust among users who may be hesitant to engage with the platform following the exploit.
Aave Labs has specifically requested that the 30,765 Ether be sent to a recovery address controlled by Aave, Kelp DAO, and blockchain security platform Certora. This approach reflects a commitment to transparency and accountability, crucial values in the DeFi space where trust is paramount. Aave Labs has stated that it expects to return the funds if the recovery effort does not succeed, further emphasizing their dedication to responsible management of the funds and the interests of the community.
As the recovery plan unfolds, it could reshape user trust and investment strategies in the DeFi ecosystem. The response from the broader community will be telling, showcasing whether collaboration can effectively mitigate the impacts of such security breaches and enhance the resilience of decentralized networks moving forward. This incident serves as a critical reminder of the importance of security protocols and the need for continuous vigilance in a rapidly evolving landscape. The collaborative efforts initiated by Aave Labs and its partners may well set a precedent for how decentralized organizations can effectively respond to large-scale security breaches in the future.
Aave's proactive approach may not only stabilize the current crisis but also pave the way for innovative recovery mechanisms that could strengthen the DeFi sector as a whole.