Arbitrum's Security Council has taken decisive action by freezing 30,766 ETH worth approximately $71.2 million on Monday, moving the funds to an intermediary wallet after tracing them to an address connected to the recent Kelp protocol exploit. The Kelp liquid restaking protocol was hacked on Saturday through its LayerZero-powered bridge, with attackers draining at least $293 million from the platform. LayerZero attributed the attack to a state-sponsored threat actor, without providing further attribution details publicly. The frozen ETH can no longer be accessed by the address that originally held the funds, with Arbitrum stating the assets 'can only be moved by further action by Arbitrum governance,' placing them under collective institutional control pending further review. Nine of the 12 elected members of the Arbitrum Security Council voted in favor of the freeze, with Council member Griff Green posting on X that the group 'did not make this decision lightly, there were countless hours of debates, technical, practical, ethical and political.'
Arbitrum's Watchdog Committee has proposed permanently excluding three DeFi projects from future DAO programs after flagging cases involving 457,553 ARB, valued at approximately ₹6.1 crore or about $76,000 at the proposal's valuation. According to the September 3 governance proposal, Good Entry, Limitless, and APX Finance face separate permanent-ban votes following allegations of high-severity misuse of DAO funds. The committee identified these cases as involving large and deliberate misuse of money allocated by ArbitrumDAO, including fabricated work and theft, though findings differ across the three projects under review. The cited amounts combine separate findings involving distributions to ineligible accounts, funds moved away from Arbitrum, and grant tokens that were allegedly left unused or distributed late, though they do not represent one confirmed theft or single balance owed to ArbitrumDAO.
Good Entry received 200,000 ARB through the first round of Arbitrum's Short-Term Incentives Program, but on-chain analysis revealed that 142,839 ARB went to 1,032 users deemed ineligible during and after the incentive period. As reported by the committee, wallets connected to the Good Entry team showed signs of self-farming, and when investigators sought an explanation, the project refused to cooperate. The committee noted that Good Entry has since stopped operating, so any approved ban would apply to its founders rather than an active team. The project's refusal to cooperate with investigators has been a key factor in the committee's decision to recommend permanent exclusion.
Limitless faces a separate finding tied to the Long-Term Incentives Pilot Program, having received 75,000 ARB but later exchanging the full grant for USDC stablecoin and transferring funds to Base, an Ethereum layer-2 network incubated by Coinbase. According to the committee, investigators classified this case as suspected theft because the conversion and cross-chain transfer removed all the grant money from the Arbitrum ecosystem. The committee said it could not contact any Limitless team members for explanation or fund recovery, and the project appears to have stopped operating since its incentive program participation. The committee has not stated that transferring assets to another blockchain is automatically improper, but its findings center on the alleged use of funds assigned for an Arbitrum incentive program and the team's failure to explain or return the money.
APX Finance received approval for 525,000 ARB under the Long-Term Incentives Pilot Program, but the watchdog's findings concern 239,714 ARB rather than the entire award. On-chain analysis found that a large share of the grant remained in APX Finance treasury addresses instead of moving to distribution contracts, with investigators also identifying transfers to distributor contracts after the required period and suspected Sybil cluster activity connected to team addresses. The committee described APX Finance's case as a combination of unreturned funds, late distributions and suspected self-Sybil activity, with investigators unable to reach team members for clarification. Unlike Good Entry and Limitless, the proposed language could cover more than APX Finance's founders if the DAO considers the project or its successor operation active, as the committee's proposed ban on an operating project includes founders, current team members, and affiliated contributors.
Each named project has been given one week from the proposal's publication to respond to the findings in the governance forum, with September 10 set as the tentative response deadline. If explanations do not satisfy the committee and relevant funds are not returned within the same period, ArbitrumDAO will hold three separate Snapshot votes where token holders can vote for bans, oppose them, or abstain in each case. As reported by the committee, no project has been banned at this stage, and the proposed bans would restrict future DAO participation without freezing wallets or removing deployed smart contracts, making affected people and projects ineligible for future ArbitrumDAO programs. The committee has proposed individual votes because the evidence, amounts, and operating status differ among Good Entry, Limitless, and APX Finance, with Snapshot voting seeking social agreement from the DAO without executing a blockchain transaction.
