rsETH Hack Event Three Remediation Paths Analysis: Balancing Reputation Damage and Default Risk, Testing KelpDAO Reputation and Aave Risk Appetite

On April 20, DefiLlama founder 0xngmi outlined three potential moves KelpDAO could take in the wake of the rsETH exploit. Each option carries major downsides, and the final call will put KelpDAO’s reputation and Aave’s risk appetite to the test. ### **Path 1: Spread Losses Across All Users** KelpDAO is pushing a plan to impose a uniform 18.5% loss on all rsETH holders. Right now, ~666,000 rsETH tokens are collateralized across the Aave network—mostly highly leveraged on mainnet and L2s (assuming a 95% liquidation LTV). If losses are socialized, all mainnet positions would be wiped out, creating ~$216M in bad debt. Umbrella Protocol can cover $55M of that, while Aave’s Treasury would absorb an extra $85M, leaving a ~$76M gap. KelpDAO might try to fill this hole via borrowing or selling Aave tokens (currently worth ~$51M), but this would still hit Aave hard—and all users would end up sharing the loss. ### **Path 2: Rug L2 rsETH Holders Outright** KelpDAO wants to protect only mainnet rsETH, writing off L2 rsETH as worthless. Aave’s L2s currently hold ~$359M in rsETH collateral (per current oracle prices). If that’s all max-leveraged, it would create ~$341M in bad debt—with no Umbrella Protocol coverage. Aave could only salvage parts of the market via its Treasury or borrowing, likely ditching high-loss chains like Arbitrum, Mantle, and Base. That would collapse those L2 markets. This play would barely hit Aave’s mainnet but crush the L2 ecosystem’s reputation and risk a domino effect. ### **Path 3: Try to Reimburse Only Pre-Hack Snapshot Holders (Nearly Impossible to Pull Off)** KelpDAO wants to fully reimburse only rsETH holders who held before the hack (via a snapshot), leaving later buyers/transferees on the hook for losses. But thanks to big fund movements post-attack and DeFi’s liquidity pool structure, it’s nearly impossible to clearly ID different batches of depositors—creating a massive technical hurdle. The hacker borrowed $124M on Aave mainnet and $18M on Arbitrum, leaving ~$91M in losses after Umbrella Protocol coverage. While this could theoretically limit spillover, it’s practically unworkable and risks sparking legal fights and community backlash.