If Aave chooses to socialize losses onto users who had no borrow exposure, no leverage, and no interaction with rsETH, this will fundamentally break trust assumptions in DeFi.
Low-risk participants are the base layer of protocol liquidity. Penalizing them for risks they did not take sends a clear signal: risk is not isolated.
That outcome would not only damage Aave’s credibility but also set a precedent that undermines the entire lending model in DeFi.
Once users realize that even “safe” positions can be forcefully impaired, capital will not return.
This is not just about one incident - it’s about whether DeFi can still claim predictable risk boundaries.
We are all here because we lent money to people who were collateralizing their borrowing with a risky asset built on poor security that led to their collateral losing value as a result of this hack.
Some of us are here to monitor the situation to see what the outcome of this bad situation is going to be and some of us are here to complain about how “it isn’t [their] fault” that they took this risk. I am in the former camp.
Lending your money carries a risk. In this case, the risk was the collateral of the borrower losing its value. You did take that risk. When you lent your money to a pool containing rsETH you exposed yourself to rsETH. That is fundamental.
AAVE merely outlined what could happen based on Kelp’s decision about how they choose to handle loss allocation, which may be going the way of Scenario 1 or the way of Scenario 2. They clearly stated they have no say in how KELP allocates the loss.
The loss is the loss in value to rsETH tokens in their claim against actual ETH. That is Kelp’s decision. Some rsETH tokens will diminish in value as there are now more rsETH tokens than ETH backing them. Kelp will either diminish the value of all rsETH tokens to socialize the loss, or they will diminish the rsETH tokens on one side of the bridge that was hacked.
Scenario 1 is the path that preserves faith in the ecosystem and supports a future where DeFi can continue to grow and be widely used. If protocols step up with additional support, the shortfall shrinks even further. Every protocol involved should commit to additional coverage through various mechanisms to limit the haircut to an absolute minimum for its users. Only that will retain users – full commitment, transparent communication, and treating the user as the absolute priority.
Scenario 2 raises a different set of questions. If this path is chosen, I would neither assume nor understand why Arbitrum should help cover losses on other L2 chains instead of protecting its own users first. And frankly – they’d be digging their own grave if they spread their resources across all L2s equally rather than prioritizing their own users. Users would leave, and no protocol with a long-term view would accept that outcome, unless it comes with one clear condition: that all affected users are made whole, collectively.
I don’t know what’s being discussed behind the scenes, but I can’t see any other rational outcome if these protocols want to survive and remain relevant long-term. Trust is incredibly hard to build – but fast and often irreversible to lose.
Kelp may control rsETH recovery, but Aave controls Aave markets.
Your own report says the open question is how losses will be allocated, and that Aave must plan for the resulting exposure on its markets.
So no, “Aave only outlined scenarios” is not a defense.
Once Aave freezes withdrawals and models socialized loss outcomes, it is part of the decision chain.
I am a pure supplier with no borrow exposure and no rsETH interaction.
Do not pretend my funds being locked or impaired is somehow not an Aave governance outcome.
Kelp may control rsETH recovery, but Aave controls Aave markets.
Your own report says the open question is how losses will be allocated, and that Aave must plan for the resulting exposure on its markets.
So no, “Aave only outlined scenarios” is not a defense.
Once Aave freezes withdrawals and models socialized loss outcomes, it is part of the decision chain.
I am a pure supplier with no borrow exposure and no rsETH interaction.
Do not pretend my funds being locked or impaired is somehow not an Aave governance outcome.
I don’t work for AAVE, so you can stop calling me names.
I don’t work for AAVE, so you can stop calling it my report and actually go read what it says about the incident until you understand it.
I don’t work for AAVE, so me referencing their report of hypotheticals is not a “defense”.
As a supplier, you are lending your money to everybody else in the pool. So, you DID interact with rsETH, as did we all.
The socialized loss scenarios they modeled were based on Kelp’s possible decision-making. Kelp may choose to dilute the value of all rsETH, or they may choose to dilute the value of rsETH on one side of the bridge that was hacked.
Why is nobody suggesting to squeeze LayerZero whith their subpar bridge and Kelp ? Why should Aave and its users be the ones to cover the losses under various schemes? Why isn’t anyone considering partial compensation from those actually responsible for the exploit as a primary option? If they won’t do it voluntarily, then file lawsuits. Let them go bankrupt if they refuse to take responsibility
Thanks for the updated estimates, however I can’t imagine the scenario 2 to be relevant with this assumption. Because there is no way the Arbitrum governance will generously donate the seized fund to spread the loss over all network including mainnet to then penalize L2 networks only.
Arbitrum can now leverage their position to say that L2 and DeFi on L2 matters, scenario 2 would imply that L2 are not for DeFi and value based usecases, and Arbitrum probably doesn’t want that. Scenario 1 suggest that mainnet and L2 are a global ecosystem with common interests, so Arbitrum will probably push for that. Otherwise they might say that they will use the frozen eth for the Arbitrum ecosystem only.
It feels like they are in position of power in the current context.
“Supplied to the pool” does not mean “accepted exposure to every bad asset inside the pool.” That is exactly the kind of bad-faith generalization that destroys risk isolation.
Aave’s own report frames the question around rsETH loss allocation and the socialization boundary - i.e. who among the rsETH-exposed users should bear it. That is not the same as forcing pure ETH suppliers to eat a bridge exploit they never touched.
If you want to assign responsibility, assign it to the users who actually took rsETH/bridge risk. Pure Linea ETH suppliers are a different class entirely.
I am sorry for your loss but I don’t think you understand how lending your money to liquidity pools works. I think the lesson is to figure that out for next time. AAVE is not a person or a bank. It’s a protocol. When you lend your money to a pool of people, some of which who collateralize that debt to you with rsETH, you expose yourself to rsETH. That’s the risk you were paid yield for. There is no risk isolation inside of a pool. Everybody in the pool is exposed to the same risk. I am going to bid you a farewell, sir. I wish you luck.
AAVEJesus AAVE is not a person or a bank. It’s a protocol. When you lend your money to a pool of people, some of which who collateralize that debt to you with rsETH, you expose yourself to rsETH. That’s the risk you were paid yield for. There is no risk isolation inside of a pool. Everybody in the pool is exposed to the same risk.
You are deliberately flattening two different things to make your position look cleaner than it is. Yes, Aave is a protocol. That does not give you a free pass to erase the difference between: users who took leverage / bridge / rsETH risk, and pure ETH suppliers who did not touch rsETH, did not borrow, and did not loop. Pretending “everyone in the pool is exposed to the same risk” is exactly the lazy framing that lets bad decisions get normalized after the fact. It is not a technical argument. It is reputational self-protection.
If Aave chooses to socialize losses onto users who were not part of the risky setup, then the lesson for the market is simple: low-risk supply is not protected, and the protocol is willing to punish innocent users to preserve optics. That is how trust gets destroyed. If the team decides to pin debt on users who never participated in the risky side of the incident, people will not come back to supply capital under the assumption that basic fairness still exists.
Aave is not a passive thing you can put your money into and forget about. You have to actively monitor what is happening with the governance of the protocol and manage your risks. Any yield you earn comes from borrowers who are borrowing your assets. And they can only borrow those assets by putting up collateral. So, to earn that yield, you are inherently exposed to whatever your borrowers put up as collateral.
Let me tell you a story. It’s a simple story. I had an LUSD position in mainnet AAVE for a long time. Nothing leveraged, just simply earning some yield. Then Aave approved USD.e and SUSD.e looping. I didn’t like that. I recognized that it exposed me to risks I didn’t care to be exposed to. So I pulled my LUSD and moved on. I was a big boy and managed my risk.
Crypto is a zero sum game of taking risks and managing risks. And managing risks inherently requires YOU to do the real work of figuring out where your risks are, watching for new risks, and taking action in response. So, if you don’t do that work, or just passively delegate that work to someone else, odds are very good you will lose that zero sum game to people who do perform that work.
If you’d rather have passive safety, there are FDIC insured bank accounts insured by the full faith and credit of the US government.
It’s worth starting with what this incident is not: a demonstration that Aave manages risk poorly. Quite the opposite. Stani and his team have spent years building what is probably the most sophisticated risk management infrastructure in the DeFi ecosystem. E-Modes, supply caps, emergency guardians, isolated pool architecture, slope2 as a self-regulating mechanism — Aave didn’t become a $40 billion protocol by accident.
The response to this incident confirms that. The emergency guardians froze rsETH markets quickly, the Arbitrum Security Council seized 30,766 ETH from the attacker, and the damage was contained well below what it could have been. There is room for improvement, but these are the actions of a team that built the infrastructure to respond.
We can debate whether the risk oversight of rsETH was adequate. But even with perfect risk management, a zero-day vulnerability in a bridge or a manipulated oracle can produce exactly this scenario. If the best risk management in the ecosystem cannot prevent these events with certainty, perhaps the problem isn’t risk management. Perhaps the problem is how we prepare for when they inevitably happen.
Stop pretending this is about “risk management” spamming the chat with the same posts, trying to shirk responsibility
This is you trying to launder the cost of leveraged rsETH risk onto innocent lenders.
I did not loop, borrow, or touch rsETH.
I supplied ETH for ~1% yield. That does NOT mean I signed up to underwrite every reckless strategy Aave ever listed. THIS BASICALLY MEANS A COMPLETE LACK OF ANY DESIRE TO TAKE ANY RISK THAT WOULD UPSET THE RISK-REWARD RATIO!!!
If your position is “all lenders eat the loss,” then say that plainly, don’t hide behind fake lessons about being a “big boy”
That is not risk management.
That is socialized losses for people who did not take the risk.
Stop arguing guys… it wont change anything. Just take a look on how AAVE on harmony got handled: freeze and forget. Users lost all their funds and no solutions has ever been put in place. It seems like story is repeating. For those who says “i trusted AAVE…etc”, personnally it has been a long time since the similar exploit on AAVE harmony that i dont trust this platform anymore. They add many chains, get greedy, don’t evaluate risk properly, don’t accept any liabilities and when something happens, there is nobody anymore.
“You earn the yield, you take the risk that pays that yield. End of story.”
No, f* clown, you and gambling addicts like you are the ones who’ll suffer possible losses. Don’t get it twisted, and don’t try to blame your mistakes on me.
