Arbitrum DAO Approves $70M ETH Allocation to Support Kelp DAO Recovery Efforts

The Arbitrum DAO has voted in favor of releasing a previously frozen amount of 30,765.6 ETH worth roughly $70 million, to the DeFi United initiative. This group was created to help manage and reduce the fallout from the $292 million exploit involving Kelp DAO last month.

According to the DAO’s official voting snapshot, the proposal received overwhelming support, with 182.2 million votes in favor, representing 90.96% of total voting power. Around 9% of participants abstained from voting. With this decision, Arbitrum is set to become the largest financial contributor to DeFi United’s recovery efforts.

Kelp DAO Exploit Linked to LayerZero Bridge Vulnerability

The decision traces back to the April 18 security breach affecting Kelp DAO, a protocol built on LayerZero infrastructure.

The attacker, believed to be associated with the North Korea-linked Lazarus Group, exploited a single-verifier weakness in an Omnichain Fungible Token (OFT) bridge, draining approximately 116,500 rsETH from the protocol.

Shortly after the incident, the Arbitrum Security Council acted on April 20 to freeze the stolen ETH after it was transferred to an Arbitrum One address. These funds were later moved into a wallet controlled by the protocol, securing them from further movement.

At the same time, the attacker shifted a large portion of the stolen rsETH into Aave as collateral to borrow WETH, which ultimately led to nearly $190 million in bad debt exposure for the protocol.

Formation of DeFi United and Multi-Party Recovery Efforts

In response to the growing crisis, the DeFi United initiative was formed to coordinate recovery and restitution efforts across affected parties. Several major contributors stepped in to support the initiative, including a 30,000 ETH contribution from Consensys and Joseph Lubin, a 30,000 ETH loan from Mantle, and an additional 5,000 ETH commitment from LayerZero.

These coordinated efforts aim to stabilize affected protocols and reduce systemic risk across the decentralized finance ecosystem following the large-scale exploit.

Legal Challenges and Court Restrictions on Fund Movement

Despite the DAO’s approval, the transfer of the 30,766 ETH may face legal obstacles. A court order issued on May 1 has temporarily restricted Arbitrum DAO from moving the recovered funds.

The legal action was initiated by multiple plaintiffs referencing older terrorism-related judgments against North Korea, arguing that the frozen assets should be considered for restitution claims.

Crypto attorney Gabriel Shapiro noted on X that the DAO is currently prohibited from acting on the Kelp DAO funds until a formal divestiture hearing takes place.

Aave Challenges Court Decision in Federal Court

In response to the ruling, Aave has submitted an emergency motion in federal court, challenging the basis of the decision. The protocol argues that the claim relies on unverified assumptions linking the exploit to the Lazarus Group.

Furthermore, Aave contends that even if the assets were stolen, temporary possession does not automatically translate into legal ownership, questioning the legal foundation of the restitution claim.

This case highlights the growing tension between decentralized governance decisions and traditional legal frameworks. While the Arbitrum DAO has clearly signaled strong support for coordinated recovery efforts through DeFi United, legal restrictions are now creating delays that could reshape how stolen onchain assets are handled in the future. As DeFi continues to mature, the intersection between protocol governance, security incidents, and jurisdictional law is becoming increasingly complex, and likely to set important precedents for future incidents.