Lido Labs has asked its DAO for permission to allocate up to 2,500 staked Ether, worth about $5.8 million, to help reduce the rsETH shortfall created by the recent Kelp exploit.
The proposal, posted on Thursday, frames the move as part of a broader recovery effort rather than a full bailout by Lido alone.
The plan comes after the Kelp DAO exploit left a large hole in rsETH backing and added fresh stress across parts of decentralized finance. Lido said the incident created a “material rsETH backing shortfall” and added pressure across DeFi venues tied to lending, liquidity, and leveraged vault strategies.
Lido seeks DAO approval for limited stETH support
According to the proposal, Lido Labs wants DAO approval to contribute up to 2,500 stETH “to reduce the rsETH deficit” caused by the exploit.
The contribution would only move forward as part of a fully funded recovery package designed to close the deficit in full. That condition makes clear that Lido does not plan to act as the only source of support.
Lido said the fallout from the exploit has already spread beyond Kelp itself. In its proposal, the team said the attack caused “market rates pressure, elevated borrow/lending stress, and the risk of forced unwinds for users exposed through vaults and looping strategies.”
The wording shows that the proposal is focused not only on the direct loss, but also on limiting further damage across connected products.
The firm also said it has a reason to support a coordinated response because inaction could deepen losses for users in EarnETH vaults and create more stress for stETH-linked products. That point places Lido’s proposed contribution within a wider effort to contain risk around Ethereum-based DeFi positions.
Recovery plan depends on broader DeFi support
Lido made clear that the size of the deficit is too large for one protocol to solve alone. The proposal said the total gap exceeds 100,000 ETH, which means any repair package will need backing from several participants. Lido described its role as one of several stakeholders rather than the sole backstop provider.
That approach quickly gained some support. Shortly after the Lido DAO post, the EtherFi Foundation proposed contributing 5,000 ETH for additional relief.
The response suggests that other DeFi groups may join a wider recovery plan if terms are agreed and funding is organized around a shared framework.
Lido also stressed that its stETH support should form “part of a fully funded recovery initiative.” The language shows that the DAO wants clear limits on its role.
Moreover, it also signals that Lido is trying to avoid setting a precedent where a single protocol carries losses from a separate exploit without broader participation.
Kelp exploit triggered pressure across Aave and DeFi
The proposal follows last week’s exploit that hit Kelp DAO’s rsETH bridge and drained about $292 million. The attack later raised bad debt concerns at Aave after stolen assets linked to Kelp were used as collateral.
According to Lookonchain, Aave’s total value locked fell by nearly $8 billion after the event, while the protocol was left facing about $195 million in bad debt.
The broader damage pushed the exploit beyond a single bridge failure. Lido said the shortfall in rsETH backing led to second-order effects across integrated DeFi venues.
Those effects included pressure on rates and fresh risks for users in strategies that depend on stable collateral values and deep liquidity. Additionally, the incident has also become part of a larger discussion about how DeFi handles failures when one protocol’s weakness spreads into others.
The proposed rescue is not only about restoring missing value. It is also about limiting stress in connected systems that rely on confidence in wrapped and restaked assets.
Security concerns return as stolen funds move to Bitcoin
The Kelp exploit has renewed debate about security, accountability, and the use of centralized points in DeFi systems. Curve founder Michael Egorov argued that repeated failures tied to centralized points of failure are hurting an industry that wants to build a different financial system.
Analysts at JPMorgan also pointed to the market effect of repeated DeFi attacks. They said flat growth and ongoing security incidents are reducing institutional interest, with each new exploit pushing more investors toward stablecoins instead of on-chain risk.
At the same time, the attacker has continued moving funds. As we reported on Thursday, KelpDAO hacker swapped about 75,700 ETH into Bitcoin over roughly 36 hours, with THORChain handling much of the cross-chain activity.
Meanwhile, that move came after Arbitrum’s Security Council froze a separate 30,766 ETH linked to the exploit. The shift into Bitcoin appears to have reduced the chance of further freezes, since Bitcoin does not offer the same type of base-layer control available in some Ethereum-linked recovery efforts.