Author: Mantle Core Contributor Team
Status: Draft / Pre-MIP Discussion
Target: Mantle Treasury
This is a draft for discussion purposes, not a formal vote.
1. Executive Summary
The proposal authorizes Mantle Treasury to lend up to 30,000 ETH to Aave DAO to address the bad debt resulting from the rsETH bridge exploit on April 18, 2026. The loan will be used exclusively for the purpose of remediating the impact of rsETH incident on Aave V3. In return, Mantle Treasury will receive a yield with terms structured to align incentives and generate a positive risk-adjusted return on unallocated treasury assets.
2. Background & Rationale
2.1 The rsETH Incident
On April 18, 2026, a security breach targeting Kelp DAO’s rsETH token bridge resulted in the unauthorized minting of 116,500 rsETH (approximately $292M at the time of exploit). The attacker exploited a configuration vulnerability in Kelp’s LayerZero bridge setup—specifically, a 1-of-1 DVN (Decentralized Verifier Network) that allowed a single verifier to approve cross-chain messages without proper validation.
The attacker then deposited 89,567 rsETH of the stolen, unbacked tokens as collateral on Aave V3 and borrowed legitimate assets (WETH, wstETH, and stablecoins) valued at approximately $190M.
According to the LlamaRisk report published following the incident, the potential bad debt to Aave is estimated between $123.7M and $230.1M, depending on how losses are socialized across the protocol. Aave DAO service providers are currently leading an effort with ecosystem participants to address this shortfall and have already secured “several indicative commitments from various parties.”
2.2 Alignment with Mantle Strategic Objectives
This proposal advances three core objectives identified in Mantle governance documents :
-
Generate yield on treasury assets: the loan will authorize Mantle Economics Committee to convert idle capital to a yield-generating credit asset
-
Strengthen ecosystem partnerships: it would position Mantle as a preferred liquidity partner for Aave, accelerating Aave deployment on Mantle Network
-
Enhance token holder value: Interest proceeds directed to the treasury for MNT burns or ecosystem funding
3. Proposal Details
3.1 Loan Structure
The loan shall be governed by the following binding parameters:
- Principal Amount: < 30,000 ETH
- Borrower: Aave DAO (via Aave Labs or designated entity)
- Interest Rate: LIDO +1% APR, or other terms as negotiated and finalized by the execution team
- Maturity Date: up to 36 months
- Early Repayment: Permitted without penalty at Borrower’s discretion
3.2 Use of Proceeds
Proceeds shall be used exclusively for the purpose of addressing the impact of the rsETH incident on Aave V3.
3.3 Risk Mitigation Framework
Consistent with guidance outlined in Mantle governance documents, the following protections shall apply:
-
Collateralization: All ETHs under the loan shall be distributed to a multisig wallet designated by Mantle over which Mantle has a first priority lien and security interest. Aave will also allocate an additional amount including 5% of Aave protocol revenue and Aave tokens with no less than $11 million fair market value to the designated wallet or to a multisig SAFE as collateral for the loan. Mantle shall hold a key to the wallet or SAFE.
-
Customary events of default: The loan is immediately due and payable if there is an event of default, including failure to pay, insolvency of the borrower, breach of the terms of the loan etc.
-
Other protection mechanism: Mantle will be delegated 130,000 Aave tokens to participate in the governance and voting of Aave community.
4. Benefits to Mantle Community
4.1 Financial Return
Converts a portion of unallocated treasury assets (currently earning baseline yield) to a fixed-income instrument with premium crisis-era pricing. The interest generated may be directed to future MNT burn initiatives or ecosystem development.
4.2 Strategic Positioning
Establishes Mantle as a first-response liquidity provider for major DeFi protocols during stress events. This reputation enhances Mantle Network’s value proposition for institutional partners and prospective deployers.
4.3 Ecosystem Growth
Accelerates Aave’s native deployment on Mantle Network, driving TVL and user activity to Mantle L2. Aave’s presence serves as an anchor protocol for the broader Mantle DeFi ecosystem.
4.4 Community Confidence
Demonstrates active treasury management and a proactive stance on industry resilience, reinforcing token holder confidence in Mantle’s long-term stewardship.
5. Call to Action
The Mantle community is requested to:
- Discuss the risk-return profile of this loan in the forum thread below
- Provide feedback on proposed terms, particularly interest rate and duration parameters
- Signal support via forum poll to advance to formal Snapshot vote
We turn a moment of crisis for others into a strategic financial and partnership victory for Mantle.
This proposal is submitted for Pre-MIP discussion. Terms remain subject to modification based on community feedback prior to formal Snapshot vote.