A proposal to release more than 30,765 ETH frozen by the Arbitrum Security Council has moved to Snapshot for its first round of voting. The proposal seeks approval from Arbitrum governance to send the immobilized ETH into a coordinated recovery effort aimed at restoring rsETH’s backing and improving market conditions for affected users.

The proposal has been authored by Aave Labs, KelpDAO, LayerZero, EtherFi, and Compound. It asks Arbitrum DAO to approve the release of 30,765.67 ETH that was frozen after the rsETH incident and moved to a designated address controlled through Arbitrum governance processes.

If passed, the funds would be sent to a recovery address managed through a 3-of-4 Gnosis Safe with signers from Aave, KelpDAO, EtherFi, and Certora. The ETH would then be used to support remediation for losses linked to the exploit and help restore backing for rsETH.

• What Happened?
• Why the ETH Was Frozen
• The rsETH Backing Problem
• How the Recovery Would Work
• What Happens Next?

What Happened?

The incident began with an exploit involving rsETH, a liquid restaking token issued by KelpDAO. According to the proposal, the issue created a deficit in rsETH’s backing after 116,500 rsETH was released on Ethereum without a corresponding burn on the source side.

This broke the expected bridge invariant, where Ethereum-side locked rsETH should properly cover remote-chain minted supply. As a result, there was a major mismatch between rsETH claims and the confirmed backing available in the adapter.

The proposal cites an incident report stating that only 40,373 rsETH remained as confirmed backing for 152,577 rsETH of remote-chain claims. This created an estimated shortfall of around 76,127 rsETH.

While Aave’s own smart contracts were not compromised, the exploit affected Aave markets because the exploiter had supplied rsETH as collateral and borrowed against it. Across Aave’s Ethereum Core and Arbitrum markets, the exploiter supplied 89,567 rsETH and borrowed 82,650 WETH plus 821 wstETH.

Why the ETH Was Frozen

On April 21, 2026, the Arbitrum Security Council froze 30,765.667501709008927568 ETH connected to the exploiter on Arbitrum One. The funds were moved to the address 0x0000000000000000000000000000000000000DA0.

The Security Council’s action immobilized the funds, but it did not automatically determine what would happen to them next. For the ETH to be released, Arbitrum governance must approve a further action. This is why the current proposal is necessary. The funds are already frozen, but the DAO must decide whether they should be sent into the coordinated recovery process.

The proposal frames this as a one-time measure because the funds are already secured, the affected parties are coordinating on recovery, and the main remaining question is where the frozen ETH should go.

The rsETH Backing Problem

The core issue is that rsETH’s backing was weakened by the exploit. In simple terms, more rsETH claims existed than the confirmed assets backing them.

This matters because liquid restaking tokens depend on user confidence that each token is properly backed by underlying value. When that backing is impaired, it can create uncertainty for holders, liquidity providers, borrowers, lenders, and protocols using the token as collateral.

The frozen 30,765.67 ETH would not fully close the reported backing shortfall, but it would make a meaningful contribution toward reducing it. Every ETH returned to the recovery effort would reduce the gap and improve the position of affected users proportionally.

A full recovery would restore rsETH’s backing entirely and help normalize market conditions. A partial recovery would still reduce the deficit and improve confidence while other recovery contributions are explored.

For DeFi markets, this is not just a token-level issue. When a collateral asset loses backing or market confidence, lending protocols, liquidity pools, and users across multiple chains can all be affected.

The proposal to release the ETH frozen by the Arbitrum Security Council to DeFi United has moved to Snapshot for its first round of voting.

These funds would support efforts to restore rsETH’s backing and normalize market conditions.https://t.co/Trje3W9PY9

— Aave (@aave) April 30, 2026

How the Recovery Would Work

If Arbitrum governance approves the proposal, the frozen ETH would be released from the DAO-controlled address and sent to the designated recovery Safe.

From there, the ETH would be used to restore rsETH backing within the Kelp protocol. The proposal emphasizes that the funds should be applied in a neutral and non-discriminatory manner toward reducing the backing shortfall.

The intended outcome is straightforward:

• Reduce the rsETH backing deficit
• Improve conditions for rsETH holders
• Lower impairment across affected DeFi markets
• Support normalization of liquidity and collateral conditions

The proposal also states that if the recovery effort does not proceed as planned, the involved parties would return to Arbitrum governance for further direction.

This is important because the DAO is not simply transferring funds without conditions. The proposal creates a governance-approved path for the funds, with a defined recovery purpose and a fallback expectation if plans change.

What Happens Next?

The Snapshot vote will determine whether there is sufficient initial support from Arbitrum governance participants to move forward. If the vote passes and the proposal advances, the next major step will be an onchain Constitutional AIP. That onchain process would be binding and, if approved, would authorize the final release of the frozen ETH to the recovery address.

For affected rsETH holders, the vote represents a possible path toward partial recovery. For Aave users, it could help reduce market impairment caused by the collateral issue. For Arbitrum DAO, it is a major governance decision involving emergency security action, cross-protocol recovery, and the use of immobilized funds.

The outcome could also become an important reference point for future DeFi incidents. As protocols become more connected, DAOs may increasingly face questions about how to coordinate recovery after exploits, especially when funds are frozen by security councils or other emergency mechanisms.

For now, the proposal has entered its first major governance phase. Arbitrum delegates and voters will decide whether the 30,765.67 ETH should remain frozen or be released to support the rsETH recovery effort.

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