According to predictions from an Apolymarket contract, it seems unlikely that Kelp DAO will distribute losses caused by last weekend’s $292 million breach beyond those directly impacted. The odds currently stand at only a 14% chance of “socializing the losses,” which would entail making Ethereum rsETH holders—who were not affected—contribute to covering the losses incurred on other chains.
The cyberattack resulted in approximately 116,500 rsETH being siphoned from a LayerZero-powered bridge that supported reserves for the token across over 20 blockchains. Consequently, parts of the system became undercollateralized, leaving some holders with tokens that were no longer fully backed by ether (ETH).
To “socialize the losses” would necessitate Kelp redistributing the deficit among all rsETH holders, including those on Ethereum’s mainnet, rather than confining the impact to users and protocols associated with the breached bridge.
A well-known precedent for this tactic occurred in 2016 when Bitfinex imposed shared losses on its users following a $60 million hack, effectively mutualizing the financial hit to prevent shutdowns.
More recently, derivatives exchanges have employed variations of this concept via auto-deleveraging (ADL). This method involves reducing profitable positions to cover losses once insurance funds are depleted. During the October flash crash, ADL mechanisms were activated at certain venues, liquidating even neutral market positions and exposing traders to risk. While these actions are infrequent and contentious, they have been utilized as a measure of last resort under duress.
Kelp’s predicament is notably intricate. The breach siphoned reserves backing rsETH across more than 20 chains, leading to disparate losses among various user groups and platforms. Users on affected networks now face diminished collateralization, while others remain mostly unaffected. Any endeavor to balance these losses would necessitate cross-chain coordination, precise liability accounting, and a readiness to impose losses on users who might not perceive themselves as impacted.
This complexity makes an equitable, system-wide redistribution both technically and politically challenging, likely contributing to the skepticism expressed by Polymarket traders.