- Aave DAO proposes 25,000 ETH to help close rsETH shortfall after Kelp DAO bridge exploit.
- Combined pledges, freezes, and Mantle credit facility aim to fully cover the remaining gap.
- Exploit minted 116,500 rsETH, leaving Aave exposed to bad debt on V3 markets.
Aave DAO has introduced a governance proposal to allocate 25,000 ETH from its treasury to support a recovery plan following the April 18, 2026, rsETH bridge incident tied to Kelp DAO.
The proposal, published as an ARFC, outlines a fixed contribution aimed at restoring asset coverage while aligning with a broader DeFi United recovery framework that includes protocol donations, asset freezes, and a credit facility. The initiative comes as the estimated deficit has narrowed from an initial 163,183 ETH to about 75,081 ETH following partial recoveries and pledged support.
Recovery Contributions Narrow Funding Gap
The proposed 25,000 ETH allocation would act as a fixed contribution toward closing the remaining gap. According to the plan, any additional donations beyond the target would be directed toward repaying a separate credit facility extended by Mantle. Existing commitments already include around 14,570 ETH from various contributors, alongside a proposed loan facility of up to 30,000 ETH from Mantle.
Other network participants have also disclosed intended contributions. Lido DAO has proposed up to 2,500 ETH, while Ether.fi has disclosed up to 5,000 ETH. Individual pledges include 5,000 ETH from Aave founder Stani Kulechov and 500 ETH from senior engineering executive Emilio Frangella. Golem has committed 1,000 ETH, and additional support has been noted from other contributors, including BGD Labs.
A tracker shared on X estimated the remaining rsETH gap at 112,204 rsETH or 118,400 ETH. The same estimate indicated that, when accounting for pledged funds, frozen assets, and expected recoveries across platforms such as Aave and Compound, the shortfall could be fully addressed if the proposed contributions are executed.
Related: Aave Deposits Drop Below $30B as rsETH Incident Triggers Liquidity Strain
Mantle Loan Terms and Structure
In parallel, Mantle has proposed a separate credit facility of up to 30,000 ETH to assist Aave in managing bad debt linked to the incident. The proposal, identified as MIP-34, specifies that the funds would be used exclusively to resolve rsETH-related exposure in Aave V3.
The loan would carry an average interest rate based on Lido’s staking APR plus a 1% premium, with final terms subject to negotiation. The duration can extend up to 36 months, with the option to repay early without penalties. Collateral requirements include placing 5% of Aave’s revenue and at least $11 million in AAVE tokens into a multisig wallet controlled under Mantle’s security terms.
Exploit Origin and Market Impact
The incident originated from a breach involving a LayerZero-powered bridge, which enabled the unauthorized minting of 116,500 rsETH tokens. The attacker used the assets as collateral on Aave V3, borrowing 82,650 WETH and 821 wstETH, thereby exposing the protocol to bad debt.
Separately, an alternative recovery structure has been proposed by Marc Zeller, founder and CEO of Aave-Chan Initiative, proposing a deposit vault model tied to Aave’s income streams. However, the current governance proposal focuses on direct treasury contribution within the broader recovery framework.
Disclaimer: The information presented in this article is for informational and educational purposes only. The article does not constitute financial advice or advice of any kind. Coin Edition is not responsible for any losses incurred as a result of the utilization of content, products, or services mentioned. Readers are advised to exercise caution before taking any action related to the company.
