Correct. As long as there is no official timeline given up until now I think that there will not be one…
@noisewar I’ll keep this brief because I think we’ve both made our positions clear, and I’d rather focus energy on solutions than on debating scenarios neither of us controls.
On the Ripple point - respectfully, the analogy doesn’t quite land. The court distinguished based on how a token was sold and marketed to buyers, not on backend infrastructure. Kelp marketed rsETH as one unified asset across all chains — same branding, same docs, same yield mechanics, same OFT standard. No user was ever told they were buying a structurally subordinated version. If the Ripple precedent teaches anything, it’s that buyer-facing communication matters more than plumbing — and Kelp communicated uniformity.
But honestly, that’s a debate for lawyers, not for this forum. What matters here is the practical reality for the people affected.
A lot of users across multiple chains are stuck right now - frozen positions, 100% utilization, high interest yields, zero clarity on timeline or recovery. These are real people with real capital locked up, and none of them are responsible for a compromised 1-of-1 DVN configuration. Not on L1, not on L2. The responsibility sits with Kelp, LayerZero, and the service providers who approved rsETH as collateral.
I understand and respect that you’re arguing from an Aave governance perspective about what’s optimal for the protocol. So am I. And from that perspective, the answer is clear: Aave needs to do everything in its power to get its users out of this — ideally whole, or at worst with a small single-digit haircut. Whether the final outcome is full recovery or a modest loss will depend on how the recovery plays out. But the approach has to be as equal as possible across all chains, with transparent communication throughout.
The alternative - protecting L1 while letting L2 absorb the damage - would set a precedent that fundamentally undermines Aave’s multichain thesis. V4 just launched with multichain as the core value proposition. If L2 depositors learn that they’re second-class citizens in a crisis, that expansion is dead on arrival. No rational capital allocator would deploy on an Aave L2 after that signal. The long-term cost to the protocol would dwarf any treasury spend required to make users whole.
Stani said it best: “Our priority is our users. Pointing fingers is not something that gets us to the other side of this.” I trust that means all users, on every chain. That’s the only path that preserves what Aave has built — and the only resolution that DeFi can credibly point to as evidence that this industry protects its participants.
I’ll leave it at that. Hoping for a strong, coordinated resolution that does right by everyone affected. 
4 Likes
Thank you for taking the time to make it clear that it’s about people/projects who have their capital locked with an unknown resolution timeline, and NOT ABOUT anyone’s understanding of how law works or what’s right or wrong.
We need a timeline commitment to a solution, one way or the other. We are not here to watch people debate.
I held a total of $1 million as collateral on Aave for almost a year, with 80% in WETH and 20% in WBTC on Arbitrum, in order to work with Hyperliquid. I never touched rsETH or any other wrapped assets, never did looping or any other yield enhancement strategies. The deposit yield was tiny, and the only purpose of holding the position was to periodically borrow USDC for delta-neutral strategies on Hyperliquid.
Now I have been turned into a second-class L2 user and blamed for taking on extra L2 risk in exchange for higher yield, as if I had knowingly accepted the risks of tokens in Aave’s so-called unified pool. Meanwhile, that risk was added by the Aave team itself, and I had no idea that other tokens in the pool could somehow affect my WETH deposit.
I cannot use my own money, and the team is openly deciding which part of the debt to shift onto users like me instead of covering its own risk management failure.
I exited yesterday at -2.9% and lost $23,000 on this. That is still better than sitting in the dark and being told that users are supposedly responsible for actively monitoring and understanding the risks the platform itself takes on every day. What exactly is the Aave team doing then, and what are they earning their outsized profits for?
For me, Aave’s reputation is permanently destroyed, and I will never return to this platform, just like most L2 users who were publicly blamed for the failures of Aave’s own team.
6 Likes
User Perspective: Kelp DAO must bear full responsibility for the rsETH exploit losses.
"I am an Aave user with a significant ETH deposit on Mainnet and Arbitrum. I am deeply concerned about the current freeze and the potential ‘socialization’ of losses.
It is clear that the root cause of this crisis is the vulnerability in Kelp DAO’s smart contracts. As users, we trusted the Aave ecosystem’s integrity. It is unacceptable to penalize ETH suppliers for a failure in a specific collateral asset like rsETH.
Kelp DAO must use their full treasury and collateral to cover the deficit immediately. Aave DAO should prioritize the protection of its core depositors over the interests of the party responsible for the exploit. We expect a recovery plan that ensures 100% of our funds are returned without any ‘haircuts’."
4 Likes
This is the most bizarre and harmful narrative.
Remember, we came to L2 because gas price issue in the first place, and rollup was part of the Ethereum narrative!
Now, in order to avoid taking a loss, someone gaslighting us as if we made terrible decisions?! Guys, many of us have assets on all chains, including L1. This gaslighting must be stopped.
3 Likes
The fact that this isn’t the headlining narrative is what bothers me the most
Respectfully disagree but appreciate your points, though you are still debating scenarios 
Want to be clear that I’m only talking about the defensibility of protecting L1 users first. That is not at all saying L2 users should be second-class citizens. It is very much the responsibility of all operators to find a way to make L2 users whole. I’m only defending on the mechanism of it being borne by AAVE.
The main ways I can imagine would be all stakeholders working together is to maximize some kind of backstop, this is in the financial interest of all their investors too. Maybe something crazy would be issuing distressed bonds that can be paid back over time with operational income. Revaluating the current protocol params would be ideal too, but I do feel slope 2 limits are doing real work. Subsidizing lending side APY with rewards?
I don’t know, spitballing, but I hope whatever is done, there is highly involved governance involvement.
1 Like
As a long term AAVE’s prisoner since Harmony bridge hack - welcome to the club. you want resolution timeline - check how HARMONY HACK was resolved!
Exactly, AAVE harmony users were treated like worthless users by this community.
The OFT standard is not just implication; it’s architectural design. A unified cross-chain supply with a single withdrawal queue is structurally incompatible with differentiated redemption rights. Kelp never disclosed any backing distinction because disclosing one would have contradicted their own deployment architecture. The Ripple precedent you cite addressed securities classification, not redemption parity these are categorically different legal questions. And as Danulinio notes: Scenario 2 destroys Kelp’s own recovery position. The legal and economic logic both point the same direction…
EMOTIONS ARE HIGH
The Only Coherent Way to Resolve the rsETH Incident
There’s a lot of debate around how losses from the rsETH incident should be handled. But once you strip away emotions and focus on system design, the solution space becomes much clearer.
1. Start with first principles: rsETH is one asset
rsETH is designed as a fungible, omnichain token with a unified supply. That has a critical implication:
You cannot treat holders differently depending on where they are (L1 vs L2) without breaking the asset itself.
Any attempt to isolate losses to a subset of users turns rsETH into multiple inconsistent assets. That destroys trust, pricing integrity, and composability.
2. Losses must be socialized at the asset level
Given that design, the baseline reality is simple:
All rsETH holders share losses proportionally.
If the system has an 18% shortfall, then every holder takes roughly an 18% haircut. This is not punitive, it’s simply accurate accounting.
3. Aave should participate, but not fully absorb the loss
Aave listed and enabled the asset, so it has some responsibility in the outcome. At the same time, fully backstopping the loss would create dangerous incentives.
The rational middle ground is:
- - Aave treasury and safety mechanisms cover a portion of the deficit
- - The remainder is absorbed by rsETH holders
For example, reducing an 18% loss to ~12% through partial coverage dramatically improves user outcomes without introducing moral hazard.
4. Avoid concentrating losses within Aave
Any remaining losses inside Aave should be distributed proportionally across affected markets not dumped onto a single group like L2 users or a specific borrower segment.
Concentrated losses create “sacrificial victims,” which is the fastest way to permanently lose user trust.
5. This is ultimately about credibility
The goal isn’t to eliminate pain as that’s not possible. The goal is to handle it in a way that is:
- - consistent with the asset’s design
- - fair across participants
- - sustainable for the protocol
Conclusion
The only coherent path forward is:
- - Global rsETH loss socialization
- - Partial Aave backstop
- - Proportional distribution of remaining losses
Anything else either breaks the asset, unfairly targets users, or creates long-term systemic risk.
In moments like this, consistency matters more than optics. DeFi is risky and we must all account for the risk. No one is free from the risk. Even the new project that are PUMPing 100% faces the same risk. It just a matter of time before they get hit. Bear with me but I think rsETH can depeg and so can WBTC be warned of the risks.
Finally:
Let me be crystal clear here: AAVE has zero fault here. rsETH went through a governance vote to allowed as a collateral. Pointing fingers is not the solution but learning from it is the solution. As holder of AAVE and I am going to look at all collateral assets and those deemed INSECURE will not make it into V4. It will be a total clean-up and only assets with proven track records of SECURE 1:1 redemption should make it.
Agreed on all points here, I think this is an excellent summary on where we stand. I would like to add two additional points for completeness:
Timeline: In addition to the negative outcomes mentioned by bobgodwinx, another outcome which would be problematic is to leave some pools permanently frozen/illiquid, thereby trapping depositors assets. We should commit to some decision making timeline to give depositors confidence.
Yield of Illiquid Assets: During normal operation of AAVE protocol, a pool can become illiquid if there is too high utilization, but depositors are compensated for this lack of liquidity by receiving a higher yield. This was disabled by forcing the max yield on WETH Arbitrum pool down to 3%, further increasing the dissatisfaction of affected depositors. I think we should avoid taking steps like this in future, if a pool’s max yield is X% according to the curve, in times of illiquidity we should be willing to actually compensate depositors X% regardless of the reason for the illiquidity.
1 Like
I agree Aave has zero fault. But “partial Aave backstop” in practice means wiping out 772 people in the Umbrella module who earned 2.29% above the lending rate. I just want people to remember these are real people, some of it retirement savings, not a slush fund, being proposed as collateral damage for a bridge exploit on L2 infrastructure that Aave confirmed did not affect mainnet.
Extending that socialization into Aave’s mainnet means people who never touched rsETH lose everything while rsETH holders take 18%. That’s not proportional, it’s inverted.
7 Likes
Update
rsETH reserves have been paused via the Protocol Guardian across Ethereum Core, Arbitrum, Base, Mantle, and Linea. This is intended to preserve recoverable value as the recovery plans progress.
- Ethereum Core: Ethereum Transaction Hash: 0xa496b8d982... | Etherscan
- Arbitrum: Arbitrum One Transaction Hash: 0x0676d5a9d7... | Arbitrum One
- Base: Base Transaction Hash: 0x3a1ee0669d... | BaseScan
- Mantle: Mantle Transaction Hash: 0xc4948b88e0... | Mantlescan
- Linea: Linea Transaction Hash: 0xbc78af4209... | LineaScan
We will keep the community updated on the next steps as the efforts continue.
3 Likes
It’s perhaps wittingly overly-optimistic to assume Kelp will make the false choice between just the two most preferable scenarios to AAVE users.
They could just as easily choose a third scenario and shift the entirety of the loss onto AAVE.
Scenario 2 states this very clearly:
“Mantle has the highest exposure. Its WETH reserve of 46,946 ETH would absorb $77.7M in bad debt (33,542 WETH), representing a 71.45% shortfall. Arbitrum faces a 26.67% shortfall ($88.4M bad debt against a 143,353 ETH reserve). Base follows at 23.28%. Ink contributes $13.9M in bad debt (18% WETH shortfall). Other chains and reserves are impacted more moderately.”
This indicates that all depositors across the L2 networks would be affected, and there is no confirmation anywhere that Aave itself would cover the remaining loss. So, having learned from the experience of Luna and UST, we assess the risks based on the probabilities provided.
I just had to jump on here and say how proud of the leadership team of aave Stani.
DEFI UNITED!!!
Ps. I’m a weth umbrella staker . Huge thanks 
7 Likes
The OFT standard is not just implication; it’s architectural design. A unified cross-chain supply with a single withdrawal queue is structurally incompatible with differentiated redemption rights.
Architectural design also is not in itself an affirming or disaffirming classifier for redemption rights. But there’s no legal basis to say a “unified cross-chain supply with a single withdrawal queue” (in which an adapter by definition is not the same queue) is at all incompatible with redemption rights. That’s how some people want it to be, maybe it should be, but that’s not a case that has been proven.
The Ripple precedent you cite addressed securities classification, not redemption parity these are categorically different legal questions.
Correct, it was about securities classification. There hasn’t been a case about redemption distinctions. I’m saying that case gives partial relevant precedence for discrimination on technical implementation basis because fungibility and marketing were specifically insufficient.
On OFT Architecture..
LayerZero OFT uses a single canonical supply across chains the adapter is a routing layer, not an independent redemption pool. The April 20 depeg hit all chains simultaneously: Mantle faced 71.45% shortfall, Arbitrum 26.67% (~$88.4M bad debt), Base 23.28% same event, same root cause. That’s synchronized cross-chain contagion by design, not coincidence.
On Ripple Precedent:
If technical implementation justifies differentiation (per Ripple logic), then Kelp’s OFT architecture which built zero technical barrier between chain-based redemption pathsworks against their position, not for it.
With $180M+ aggregate bad debt across 4+ chains from a single oracle failure, the burden of proof lies with those claiming this architecture permits differentiated treatment.