DeFi United proposes rsETH recovery after $292M Kelp DAO hack

DeFi United proposed a multi-part plan to restore rsETH after a Kelp DAO exploit that withdrew about $292 million. The plan asks Kelp DAO governance to approve emergency measures and a recovery mechanism for affected holders.

The proposal calls for an immediate governance vote to authorize a temporary recovery token distributed to rsETH holders based on a pre-exploit snapshot. The token would represent claims on future protocol revenue and portions of the treasury until reimbursements are completed. The group also recommends pausing noncritical rsETH contract functions while the recovery framework is implemented.

Kelp DAO would combine funding sources to underwrite restitution, including transfers from protocol treasuries, funds recovered through on-chain tracing and cooperation with exchanges, proceeds from coordinated white-hat recoveries, and issuance of a capped debt token to professional market makers and backers. DeFi United proposes a 14-day emergency governance window to approve recovery-mechanism smart contracts, followed by phased distributions to claimants as assets are recovered or converted to stable assets.

The proposal includes technical steps such as partnering with blockchain analytics firms to trace exploiter addresses and requesting custodians to freeze funds where they cooperate. It recommends increased use of multisignature custody and time-delay modules on high-value contracts to limit single-point failures.

On the legal side, the plan recommends that Kelp DAO coordinate with law enforcement and pursue civil remedies against identifiable counterparties that received stolen funds. The group also calls for a public audit of the recovery contracts and formation of an independent committee to oversee distribution rules for transparency.

DeFi United described the plan as aiming to preserve value for rsETH holders while using technical and legal tools to recover assets. A DeFi United spokesperson added, “Our aim is to preserve value for rsETH holders while using all available technical and legal tools to recover assets. The proposal is designed to be executable through decentralized governance and to limit unintended consequences for the wider ecosystem,” and noted readiness to work with Kelp DAO’s governance council and major liquidity providers to refine mechanics before a vote.

The exploit affected liquidity pools and lending positions that used rsETH as collateral, causing price dislocations on several decentralized exchanges. Some traders and automated market makers adjusted risk parameters and some counterparties temporarily halted rsETH-related services.

If exploiter funds are not fully retrievable, the proposal recommends a scheduled haircut for certain classes of claimants and an extension of recovery token maturity to give the DAO more time to rebuild reserves. The plan includes provisions to avoid retroactive changes to primary staking rewards and to preserve incentives for node operators and external validators.

The group plans to publish the full technical specification and economic model for the recovery token and open a community comment period before a governance vote. Affected users are encouraged to prepare proof of holdings and transaction histories to speed claims processing.

rsETH is a liquid staking derivative tied to staked Ether positions managed within Kelp DAO’s protocol. Liquid staking tokens let holders earn staking yields while remaining tradable. Security failures that affect custodial or contract controls can expose these tokens to losses because staked positions and derivative accounting are linked across multiple smart contracts.