Aave Faces KelpDAO Bailout as rsETH Losses Mount

Aave is under mounting pressure after the KelpDAO exploit, where an attacker drained 116,500 rsETH (about $292M) from Kelp’s cross-chain bridge. Sources say Aave and Kelp are exploring bailout options while vault losses accelerate. Aave’s problem is immediate and structural: negative APY is costing vaults $100k+ per day, and frozen rsETH markets are trapping positions. With roughly 86% of rsETH held on Aave, any resolution linked to L1 could lock up billions. EarnETH already has direct rsETH exposure via a levered rsETH/ETH position (~9% of the vault, ~$21.6M), adding to the urgency. Lido has paused vault curator processing for fair treatment and is preparing “haircut” mechanics. Deposits/withdrawals may reopen only if the rsETH position is marked to a known maximum haircut, so users can exit at a worst-case value. Lido’s first-loss protection is funded with $3M from the Lido DAO treasury. Market participants (Aave, Lido, Kelp) appear aligned on the same strategy: keep losses localized on Layer 2 to avoid a wider hit to EarnETH and connected products. However, the talks also highlight a dispute over who takes the loss and how quickly, while social silence continues across parties. Key takeaway for traders: Aave’s near-term risk profile is elevated as it weighs fund-raising, potential bad-debt handling, and market-freeze scenarios tied to the KelpDAO rsETH incident—making sentiment sensitive to any update on bailout size, haircut terms, and whether losses can be contained on L2.