According to a post by DefiLlama founder 0xngmi, following the hack on KelpDAO, Aave faces pressure to address bad debt, with three potential solutions: first, socialize the losses by reducing user balances by 18.5%, resulting in approximately $216 million in bad debt; umbrella insurance would cover $55 million, and the treasury would contribute $85 million, leaving a remaining gap of $76 million; second, execute a "rug pull" on rsETH holders on L2, generating approximately $341 million in bad debt; third, restore assets based on a snapshot taken before the attack, leaving approximately $91 million in losses after umbrella insurance coverage. Additionally, it is recommended to seize the hacker’s collateral to offset part of the bad debt; Aave OG’s security module holds approximately $300 million in AAVE tokens, which, at a 20% reduction, could provide around $60 million in coverage.
Aave Faces Three Options for Handling Bad Debt Following KelpDAO Hack
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Summary
A crypto hack targeting KelpDAO has prompted Aave to evaluate three solutions for bad debt. The first plan distributes losses with an 18.5% user impairment, resulting in $216 million in bad debt. Umbrella insurance would cover $55 million, and the treasury $85 million, leaving a $76 million shortfall. The second option targets L2 rsETH holders, generating $341 million in bad debt. The third option restores assets using a pre-hack snapshot, resulting in a $91 million loss. Aave could also seize the hacker’s collateral, with the original security module holding $300 million in AAVE tokens, providing up to $60 million in coverage. Such an exchange hack underscores the urgent need for stronger risk controls.
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