Aave & Kelp seek $71M ETH for rsETH recovery on Arbitrum
Aave Labs and Kelp DAO have asked Arbitrum DAO to release 30,765.67 ETH (about $71M) that was frozen after the Kelp DAO exploit recovery plan. The funds are intended to support rsETH recovery by restoring rsETH’s economic backing.
Under the proposal, the recovered ETH would be moved to a Gnosis Safe controlled by a 2-of-3 setup involving Aave, Kelp DAO and Certora. The wallet would only receive the recovered assets and use them to help restore rsETH’s backing. If the plan stalls, the authors say the funds would return to Arbitrum governance for further direction.
Some Arbitrum delegates raised concerns that Arbitrum’s Constitutional AIP process could take around 49 days, potentially delaying urgent rsETH recovery steps for users with open Aave positions. A delegate suggested running a quicker community signal via Snapshot to confirm intent before execution, and asked for clearer guidance on how rsETH holders and Aave users would be treated under full or partial recovery.
The filing frames the incident as an external exploit impacting assets used across DeFi markets, not a compromise of Aave’s smart contracts (Aave states its contracts were not compromised). It also details the exploiter’s position on Aave: the attacker supplied 89,567 rsETH as collateral and borrowed 82,650 WETH and 821 wstETH across Aave’s Ethereum Core and Arbitrum V3 markets. Aave Labs further includes an indemnification clause covering Arbitrum-related entities.
For traders, the request is a potentially important step for rsETH recovery, but the governance timeline risk may keep market volatility elevated until confirmation.
Neutral
This news is a step toward resolving a specific DeFi incident tied to rsETH recovery: a large amount of ETH (~$71M) is formally being proposed for release and redeployment via a controlled Gnosis Safe. That tends to support sentiment because successful recoveries in the past often reduce tail-risk and improve confidence in collateral/backing.
However, the main trading risk is timing. Arbitrum’s governance process can take ~49 days, and delegates explicitly worry that delays could pressure existing positions on Aave and among rsETH holders. Similar delayed governance/rehabilitation events in DeFi typically lead to continued spreads, uneven liquidity, and headline-driven volatility until execution is confirmed.
So the near-term impact is likely mixed: traders may see a modest relief rally on the proposal headlines, but confirmation-by-vote timing and any further friction can quickly flip sentiment. In the long run, if the funds are released and the rsETH backing is restored, the outcome would be structurally constructive for holders; if not, uncertainty may prolong drawdowns and increase hedging demand.