TLDR
- A $293 million exploit of Kelp DAO left Aave with over $190 million in bad debt
- Aave launched “DeFi United” to restore rsETH and compensate affected holders
- About $160 million of the $200 million needed has been raised so far
- Arbitrum froze 30,765 ETH linked to the exploit; Aave wants those funds redirected to recovery
- Mantle and Aave DAO are the largest contributors, having raised a combined $127 million
Aave, the largest DeFi lending platform, is leading a coordinated recovery effort after a $293 million exploit drained funds through a vulnerability in Kelp DAO’s integration with LayerZero.
After discussions with several stakeholders, Aave service providers, @Ether_fi, @KelpDAO, @LayerZero_Core, @compound_xyz, and others have submitted a governance proposal to the @arbitrum DAO requesting the release of ETH frozen by the Arbitrum Security Council following the April…
— Aave (@aave) April 25, 2026
An attacker minted 116,500 unbacked rsETH tokens using the flaw. The hacker then used the stolen tokens as collateral on Aave to borrow wrapped Ether, leaving Aave with more than $190 million in bad debt.
The fallout triggered a wave of withdrawals. Aave’s total value locked dropped nearly $12 billion in a week as lenders rushed to exit the platform.
In response, Aave Labs set up a recovery fund called “DeFi United” on Friday. The goal is to fully restore the backing of rsETH and compensate holders of the token.
Blockchain analytics platform Arkham reported that Aave has raised about $160 million of the roughly $200 million it needs. That puts the fund at around 80% of its target.
The two largest contributors are Mantle and Aave DAO. Together they have pledged 55,000 ETH, worth approximately $127 million at current prices.
Aave founder Stani Kulechov has personally contributed 5,000 ETH, worth roughly $11.7 million at Ether’s current price of around $2,346.
About $21 million in total has already been deposited to the recovery address. Additional contributors include BGD Labs, Kelp DAO, Golem Foundation and Babylon.
Another $215 million has been pledged by Arbitrum, Mantle, Ether.fi and Lido, though those funds are subject to governance votes before they can be released.
Arbitrum Funds Could Boost Recovery
The Arbitrum Security Council last week froze 30,765 ETH held in a wallet connected to the exploit. That Ether is currently worth around $73.5 million.
Aave Labs has now formally proposed that Arbitrum’s decentralized autonomous organization redirect those frozen funds to the DeFi United recovery address.
The proposal was filed Saturday on the Arbitrum governance forum. It was submitted with support from Kelp DAO, LayerZero, Ether.fi and Compound.
Aave Labs said the frozen Ether “represents a material contribution” toward restoring rsETH. It added that even a partial recovery would reduce the overall shortfall.
Recovery Timeline and Structure
Aave Labs has set a 49-day timeline for the recovery effort. The funds would be held in an address controlled jointly by Aave, Kelp DAO and blockchain security platform Certora.
Aave Labs also said it would return all funds if the recovery effort fails to move forward.
LayerZero, Ethena, Ink Foundation and Frax Finance have each signaled their intention to contribute, though no firm commitments from those groups have been confirmed yet.
Arkham confirmed on Saturday that the combined contributions from Mantle and Aave DAO stand at $127 million, making them the two largest backers of the fund.
