Written by Zoltan Vardai, Staff Writer. Reviewed by Bryan O'Shea, Staff Editor. Arbitrum voters consider $71M ETH release for Kelp recovery
Arbitrum voters are considering whether to release 30,765 ETH frozen after the Kelp DAO exploit to support the rsETH recovery effort.
A proposal to release roughly $71 million in Ether frozen after the Kelp DAO exploit has moved to an Arbitrum governance vote, as decentralized finance (DeFi) protocols seek to reduce the fallout from one of the largest crypto exploits of the year.
Co-authored by Aave Labs, Kelp DAO, LayerZero, EtherFi and Compound, the proposal seeks to unfreeze the 30,765 Ether (ETH) that was frozen by Arbitrum’s Security Council on April 21. Arbitrum moved the funds to a designated address and said a governance action is required before the funds can be released.
As of publication, 100% of votes cast backed the proposal, representing 34.2 million Arbitrum (ARB) tokens. The voting window is scheduled to close next Thursday.
The Kelp DAO exploit on April 18 drained about 116,500 restaked Ether (rsETH), worth between $290 million and $293 million at the time. If approved, the frozen funds would be released to make affected rsETH holders whole and restore the token's backing.
Joint proposal to release funds frozen by Arbitrum’s security council. Source: Snapshot.org
Subject to community approval, the funds would be released in a designated recovery address ‘0xf22’ in a 3-of-4 Gnosis Safe (SAFE) with signers from Aave Labs, Kelp DAO, Certora and Etherfi.
If the first round of votes is approved, the protocols will conduct a snapshot “temperature check” to gauge delegate sentiment before the proposal is finally submitted onchain via Tally as a Constitutional Arbitrum Improvement Proposal (AIP).
Related: Aave deposits fall by $15B as Kelp exploit sparks flight from DeFi lender
Kelp’s Restaked Ether backing faces 76,127 rsETH shortfall
The Kelp DAO exploit led to a deficit in rsETH’s backing, as the KelpDAO rsETH contract released 116,500 rsETH on Ethereum without a corresponding source-side burn.
At the time of writing, there were only 40,373 rsETH in the adapter contract versus the confirmed backing for 152,577 rsETH, resulting in a backing shortfall of about 76,127 rsETH, currently worth about $174.5 million.
Still, the proposal called the 30,765 ETH frozen by Arbitrum a “material contribution toward restoring that backing.”
It argued that restoring rsETH’s backing, even partially, will help restore conditions for Arbitrum users, along with users across the broader DeFi ecosystem.
The proposal comes a week after DeFi protocols, including Mantle, EtherFi Foundation, Golem Foundation, Lido DAO, Ethena, LayerZero, Ink Foundation and Tyrdo have pledged a cumulative 43,000 Ether (worth about $101 million) to the “DeFi United” recovery effort, seeking to reduce the contagion effect of the exploit.
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