A coalition of leading decentralized finance (DeFi) entities, spearheaded by Aave service providers and including KelpDAO, Ether.fi, LayerZero, and Compound, has submitted a formal governance proposal to the Arbitrum DAO. This initiative seeks the release of 30,765.67 ETH—valued at approximately $71 million—that was immobilized by the Arbitrum Security Council following the April 18, 2026, rsETH security incident. The proposal argues that releasing these funds into a coordinated, cross-protocol recovery effort is a necessary step to address the backing shortfall for rsETH, mitigate systemic contagion, and compensate affected users across the broader DeFi ecosystem.
The Case for Coordinated Recovery
The immobilized ETH was frozen by the Arbitrum Security Council shortly after an exploiter utilized a vulnerability in the KelpDAO cross-chain bridge to mint unbacked tokens, an incident that resulted in a significant deficit in the collateral backing rsETH. According to the proposal, the goal of releasing these assets is to inject them into “DeFi United,” a collaborative recovery initiative designed to restore the economic backing of the affected derivative tokens. Aave Labs has emphasized that the incident originated outside its protocol; however, because the exploited assets were heavily integrated across Aave’s lending markets, the protocol has taken a leadership role in the remediation process to stabilize its own markets and protect its depositors. If approved, the recovered funds would be transferred to a 2-of-3 Gnosis Safe controlled by representatives from Aave Labs, KelpDAO, and Certora, ensuring the assets are applied exclusively toward restoring rsETH collateral.
Governance Challenges and Procedural Timelines
The proposal faces significant scrutiny due to the inherent complexity of Arbitrum’s constitutional governance process, which some delegates warn could take up to 49 days to reach final execution. This timeframe has sparked concern among community members and delegates who fear that a lengthy delay could jeopardize the viability of the recovery effort, particularly for users with active, vulnerable positions on affected lending platforms. In response to these concerns, some Arbitrum delegates have advocated for a swifter approach, suggesting an immediate move to Snapshot voting to confirm community sentiment before proceeding with more formal on-chain requirements. Aave has also included an indemnification clause in the proposal to protect the Arbitrum Foundation, Offchain Labs, and Security Council members from potential legal liabilities associated with the release. As the proposal undergoes community review, the outcome will likely serve as a defining moment for cross-chain governance, testing the ability of decentralized protocols to collaborate effectively under acute financial pressure and resolve systemic issues that transcend individual chain boundaries.
