Aave Faces Bad Debt Risks Following Kelp DAO Hack, Three Potential Solutions Analyzed

According to a post by DefiLlama founder 0xngmi, following the hack of KelpDAO, Aave is under significant pressure to address bad debt, with three potential solutions currently under consideration: First, socializing the losses across all users, resulting in an 18.5% devaluation for users, with an estimated $216 million in bad debt; Aave’s umbrella insurance could cover $55 million, and the treasury could contribute an additional $85 million, leaving a remaining shortfall of approximately $76 million. Second, executing a "rug pull" on rsETH holders on L2s, which would generate approximately $341 million in bad debt, with the most severe losses occurring in the Arbitrum, Mantle, and Base markets. Third, returning assets to holders based on a snapshot taken prior to the attack—a highly complex operation that would still leave an estimated $91 million in losses after umbrella insurance coverage. Additionally, some propose seizing the hacker’s collateral to offset part of the bad debt, while Aave OG’s security module still holds approximately $300 million in AAVE tokens, which, at a 20% reduction, could provide an additional $60 million in loss coverage.