Arbitrum has taken the unprecedented emergency action of freezing 30,776 ETH (worth approximately $71 million) to prevent further losses from the KelpDAO exploit. The protocol's Security Council moved decisively to halt the stolen funds—which had not yet been bridged off-chain—transferring them to a secure wallet that can only be unlocked by a future governance vote, in a bold move to shield its native DeFi ecosystem from cascading bad debt.

Arbitrum joins wider decision to freeze ETH

Arbitrum was the latest stage in a wider decision to contain the lost ETH and avoid DeFi contagion through bad debt. Aave immediately froze its two riskiest vaults to avoid more losses.

Aave has still frozen ETH on several networks where it has native vaults. 

Update on rsETH incident:

WETH reserves on the Ethereum Core V3 market have been unfrozen and users can supply WETH to Ethereum Core V3 again. WETH LTV remains at 0.

WETH reserves on Ethereum Prime, Arbitrum, Base, Mantle, and Linea remain frozen.

Aave service providers will…

— Aave (@aave) April 21, 2026

The latest estimate of $196M in bad debt may diminish if the protocols are able to intercept and freeze some of the funds. Arbitrum used a forced state transition, which did not require the address owner to sign the transaction to a new wallet.

The ability to move funds from wallets raises the issue of the censorship-free nature of crypto ownership. This time, the funds were taken from the wallet of a bad actor, setting a new potential standard for reacting to hacks. 

As Web3 attacks accelerated in Q1, protocols seek ways to quickly intercept funds and not rely on ad-hoc solutions. 

Following the hack, Arbitrum lost $300M in total value locked, down to $1.7B. Aave was down to $16.52B, down from around $25B before the hack.  

Arbitrum DAO saved its own funds

Arbitrum DAO managed to save its own funds and prevent some of the bad debt on the L2 chain. Arbitrum may be affected heavily, as rsETH may not be fully backed on the L2 chain, but only on the Ethereum main net. 

Arbitrum has managed to claw back around 25% of the stolen funds. Currently, KelpDAO and other affected parties are negotiating with Layer Zero to discover the main flaw point for the hack and a way forward to recover losses. 

The recent hack was more influential due to the composability of DeFi, leaving multiple protocols exposed to rsETH and destroying multiple positions based on token collateral.

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