The first scenario is far cheaper but runs the risk of rsETH depegging an estimated 15%, while the second is costlier but better protects Ethereum mainnet and concentrates losses at the layer 2 level.
Decentralized lending platform Aave’s risk management provider has outlined two scenarios on how bad debt from the Kelp DAO exploit over the weekend could impact the ecosystem, depending on how the losses are allocated.
The incident began on Saturday when hackers stole 116,500 Kelp DAO Restaked ETH (rsETH) tokens worth $293 million from Kelp DAO’s LayerZero-powered bridge and used them as collateral on Aave V3 to borrow wrapped Ether (wETH).
On Monday, LlamaRisk modeled two possible scenarios for how this “bad debt” could materialize on Aave, noting that the final decision rests with Kelp DAO.
