Aave Files Emergency Motion Against Arbitrum DAO
Aave has initiated an emergency motion against the Arbitrum DAO to vacate a restraining notice freezing approximately $71 million in Ethereum ($ETH) linked to the KelpDAO exploit. This motion directly challenges Arbitrum DAO's intervention.
The Aave DAO had previously approved the liquidation of 30,765.67 $ETH to compensate affected $rsETH holders.
KelpDAO Exploit Context and Broader Implications
The dispute stems from the KelpDAO exploit, which resulted in an estimated loss of $292 million to $293 million. Aave was not directly compromised but faced indirect impact due to its exposure to $rsETH, KelpDAO's liquid restaking token, utilized as collateral within Aave’s lending pools.
In response, Kelp DAO completed a full migration of nearly $1 billion in $rsETH from the LayerZero OFT standard to the Chainlink CCIP/CCT standard, enhancing its cross-chain security. Concurrently, Aave updated its internal risk frameworks, revising collateral and listing standards to address systemic risk.
External legal action also targets the $71 million in $ETH, with US terror victim families filing suit to claim these assets after a court recognized stolen cryptocurrency as executable compensation.
Chronology of Recovery: Liquidations and Coordinated Efforts
Aave governance completed the liquidation of the attacker’s $rsETH positions across the Ethereum mainnet and Arbitrum network. Approximately $30 million in recovered collateral was transferred to a designated Recovery Guardian address, a community-managed multisig wallet.
The liquidation process addressed approximately $123 million in debt held by the attacker on Ethereum. To execute these liquidations effectively, Aave voters temporarily manipulated the oracle mechanism, adjusting collateral values to facilitate liquidations.
Inter-protocol coordination aided recovery efforts. Mantle DAO supported an $rsETH incident recovery proposal, achieving quorum with approximately 110.1 million $MNT votes. As part of a four-party collaboration, Mantle lent up to 30,000 $ETH, backed by $AAVE tokens and protocol revenue, to absorb bad debt and provide liquidity. Aave confirmed these processes did not impact other users or their positions within the protocol.
Recovery Outcomes and Remaining Challenges
Aave's recovery efforts have stabilized the protocol, with liquidity restored and users able to withdraw from affected vaults. The protocol's updated collateral and listing standards are now in effect, and Kelp DAO’s $rsETH migration to Chainlink CCIP is complete.
However, a 10% $ETH gap remains in the complete restoration of assets affected by the KelpDAO exploit. The emergency motion filed by Aave against Arbitrum DAO addresses the $71 million in $ETH still frozen on the Arbitrum network under a restraining notice, pending resolution of legal and governance challenges.