Aave Moves to Allocate 25,000 ETH for Kelp DAO Exploit Recovery

Key Highlights

• Aave service providers submitted a governance proposal to allocate 25,000 ETH (approximately $58M) toward addressing Kelp DAO’s exploit shortfall
• The exploit involved an attacker creating unbacked rsETH through a compromised LayerZero bridge, which was then leveraged as collateral on Aave
• Multiple DeFi protocols including Lido DAO, Ether.fi, and Golem, along with private contributors, have committed ETH to the recovery initiative
• DeFi United’s recovery fund has accumulated approximately 69,534 ETH (roughly $161M), potentially covering the estimated shortfall
• Year-to-date 2026, DeFi’s total value locked has contracted more than 27%, falling to slightly over $80 billion

On Friday, Aave’s service providers put forward a governance proposal seeking authorization to transfer 25,000 ETH—valued at approximately $58 million—from the protocol’s treasury to the DeFi United recovery initiative. This contribution aims to ensure complete backing for rsETH following the security breach at Kelp DAO that occurred last week.

The security incident unfolded on April 18 when a malicious actor identified and exploited a critical vulnerability within the Ethereum LayerZero bridge adapter utilized by Kelp. This breach resulted in the extraction of 152,577 rsETH tokens, generating an initial deficit of approximately 163,183 ETH. The perpetrator subsequently deposited the unbacked rsETH as collateral on Aave, borrowing legitimate assets and creating bad debt for the platform.

While the proposal awaits a formal governance vote, it has garnered substantial backing from members of the DeFi ecosystem.

Several other protocols have stepped forward to participate. Lido DAO put forth a proposal to contribute up to 2,500 ETH, while Ether.fi offered up to 5,000 ETH. Golem committed 1,000 ETH to the fund, and BGD Labs also made a contribution.

Bridging the Recovery Gap

Mantle introduced a separate proposal for a low-interest credit facility offering up to 30,000 ETH, designed to assist Aave in managing any residual bad debt not addressed through donated funds.

Approximately 30,700 ETH was also immobilized on Arbitrum in the aftermath of the attack, a factor that plays into the overall recovery calculations.

According to a tracking tool circulated on X, the actual rsETH shortfall stands at 112,204 rsETH, equivalent to roughly 118,400 ETH. When combining all proposed contributions, the Mantle credit facility, the frozen Arbitrum holdings, and anticipated recoveries from both Aave and Compound, the deficit appears to be fully addressed.

X user DCF GOD calculated that the shortfall has been adequately covered, contingent upon passage of all pending governance proposals. Should this scenario materialize, Aave may not require the full extent of Mantle’s credit facility.

DeFi Sector Faces TVL Decline Amid Security Incidents

The DeFi United recovery fund currently holds approximately 69,534 ETH, translating to nearly $161 million when accounting for all pledged and proposed allocations.

According to data from The Block, total value locked throughout DeFi protocols currently stands just above $80 billion. This represents a decline exceeding 27% compared to the approximately $110 billion recorded at the beginning of 2026.

Analysts from JPMorgan have observed that recurring security exploits are dampening institutional appetite for DeFi, with some market participants redirecting capital into stablecoins.

The Aave governance vote concerning the 25,000 ETH allocation remains pending. Similarly, all other proposed contributions await final ratification from their respective protocol governance mechanisms.

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