Aave’s risk manager has outlined two potential bad debt scenarios following the Kelp DAO exploit, with losses ranging from $123.7 million to $230.1 million depending on how they are distributed.
The incident began after attackers stole 116,500 rsETH tokens worth $293 million and used them as collateral on Aave to borrow wrapped Ether, triggering liquidity stress across the protocol.
The fallout has already driven nearly $10 billion in withdrawals from Aave, underscoring how a single exploit can cascade through decentralised finance systems.
Under the first scenario, losses would be spread across Ethereum mainnet and layer 2 networks, resulting in lower bad debt but risking a 15% depeg in rsETH relative to Ether.
The second scenario concentrates losses on layer 2 networks such as Arbitrum and Mantle, increasing bad debt but better protecting the mainnet ecosystem.
LlamaRisk said Aave could also deploy its Umbrella security model and tap its roughly $181 million treasury to help absorb potential losses.
Kelp DAO said it is still assessing the exploit, which involved compromised nodes on a LayerZero bridge, while working with partners to determine the best recovery path.
At the time of reporting, Aave price was $92.92.