Mantle, an Ethereum L2, published a governance proposal offering a loan of up to 30,000 ETH to Aave DAO to help address bad debt from the KelpDAO LayerZero exploit. The loan would carry a variable interest rate of the Lido staking yield rate plus 1% APR, with a maturity of up to 36 months and early repayment permitted without penalty.

The loan allows the Mantle Treasury to receive yield to generate a positive risk-adjusted return on unallocated treasury assets, with proceeds directed toward MNT burns or ecosystem funding. Mantle would also be delegated 130,000 AAVE tokens for governance participation during the loan period. The proposal is currently open for community discussion ahead of a formal Snapshot vote. The Aave v3 Mantle WETH market currently faces the largest estimated bad debt among all impacted markets.

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Aave service providers have launched a deficit relief initiative called DeFi United, designed to fully cover the underbacked rsETH liquid staking token from KelpDAO. The initiative includes contribution pledges from several ecosystem projects: EtherFi has committed 5,000 ETH, Lido 2,500 ETH, and Golem 1,000 ETH.

Aave founder Stani Kulechov also personally pledged 5,000 ETH (approximately $11.6 million), emphasizing that Aave represents his life's work. Additional participants, including Ethena, Ink Foundation, Tydro, and LayerZero, have announced participation, though have not specified their contribution amounts.

The rsETH asset is facing an estimated shortfall of 118,000 ETH following the KelpDAO exploit executed by the DPRK. Arbitrum also recovered 30,000 ETH connected to the exploit, which could be directed toward DeFi United. 75,700 ETH has already been swapped by the DPRK via THORChain. Kulechov called for THORChain to contribute the roughly $450,000 in swap fees generated from those transactions to support DeFi United.

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Lido DAO has introduced a governance proposal to allocate 2,500 stETH to a relief fund aimed at fully covering the rsETH shortfall stemming from the KelpDAO LayerZero exploit. According to Lido, the initiative is being led by Aave service providers and will include contributions from other ecosystem participants.

Lido's EarnETH vault has direct exposure to rsETH, and if the deficit is not resolved, depositors are expected to face an estimated 9% loss, which would need to be covered in part by Lido's first-loss protection program. If the proposal passes, Lido DAO will transfer the 2,500 stETH to the Aave-led relief vehicle.

Lido also warned that the prolonged deficit could drive positions into forced deleveraging or liquidation. Borrowers on Aave are currently paying elevated borrowing costs amid peaking utilization rates.

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Disclaimer: Content is for informational purposes only, not endorsement or investment advice. The accuracy of information is not guaranteed.