The April 18 exploit of Kelp’s LayerZero bridge has left a lot of people staring at positions they can’t touch. 116,500 rsETH were released from the Ethereum-side bridge adapter without any corresponding burn on the source chain, leaving only 40,373 rsETH in the adapter to back 152,577 rsETH minted across Layer 2s. Aave then froze rsETH, wrsETH, and WETH across several markets. Kelp paused its own contracts.
If you have a deposit frozen on any chain — rsETH, wrsETH, WETH, wstETH, or an Umbrella stake — this article walks through exactly what you’re holding, what it’s worth right now, and what governance decisions between Kelp and Aave will determine what you get back. The honest answer for most categories is “nothing has been finalized yet,” but the structure of what is being decided is knowable, and knowing the structure is how you stop panic-reading every governance post.
The one-sentence summary of the gap
There is 40,373 rsETH sitting in the Ethereum bridge adapter. There are 152,577 rsETH worth of bridged IOUs floating around on Layer 2s. That’s a shortfall of 112,204 rsETH. Somebody has to eat that loss. The only question still open is who, and that question has roughly two possible answers. Everything that happens to your deposit flows from which answer Kelp picks.
The two answers, in plain English:
- Option A (uniform socialization): Every rsETH holder on every chain, including Ethereum mainnet, takes roughly a 15% haircut. Mainnet holders who were never directly affected share the pain with L2 holders who were.
- Option B (L2-only): Ethereum mainnet rsETH is left untouched because it’s backed by real ETH sitting in Kelp’s staking vault. L2 wrsETH holders take a ~73.5% haircut because the only thing backing their token is the 40,373 rsETH stuck in the adapter.
Aave’s risk report models both scenarios because Aave does not control the answer. Kelp does. As of this writing, Kelp has not publicly committed to either path. With that framing, here is what happens to each type of deposit.
If you supplied rsETH or wrsETH on Aave (any chain)
Your position is frozen but not seized. Aave’s Protocol Guardian set the LTV to zero on every rsETH and wrsETH reserve across Ethereum Core, Ethereum Prime, Arbitrum, Avalanche, Base, Ink, Linea, Mantle, MegaETH, Plasma, and zkSync. Frozen in Aave’s vocabulary means three specific things: you can’t deposit more, nobody can borrow against the asset, and the LTV is at zero so no new borrows of any kind can use your collateral. Your supplied balance still exists, interest still accrues on it, and — crucially — repayments and liquidations still work.
What you can do right now: repay any outstanding borrow you have against this collateral, and once your health factor is clean, withdraw your rsETH or wrsETH. The freeze doesn’t block that path.
What you probably cannot do: withdraw without first repaying, if your collateral is being actively borrowed against. And if you’re sitting on wrsETH specifically, the token you withdraw may itself be worth a fraction of what it was on Friday, depending on which scenario Kelp chooses.
One important detail most people are missing: Aave’s oracle is still quoting rsETH at roughly the pre-exploit price because Kelp hasn’t updated the exchange rate yet. On paper your position looks fine. In reality, it isn’t. The day Kelp adjusts the LRTOracle — or the day Aave substitutes its own feed — the price you see will move, and with it your health factor.
If you hold rsETH on Ethereum mainnet (not on Aave)
You are the least-exposed category in this entire incident, but “least exposed” is not the same as “unexposed.”
Mainnet rsETH is backed by the ETH that Kelp actually staked into EigenLayer. That collateral was never on the bridge. It was never touched. Withdrawals through Kelp’s normal redemption flow remain structurally possible — the staking layer is intact.
Your exposure is entirely a function of what Kelp decides. Under Option B, you are whole. Under Option A, you absorb roughly 15% of the damage alongside everyone else, even though your specific token never left home. This is the decision Kelp is under the most political pressure over, because mainnet holders vastly outnumber L2 holders and they did nothing wrong. Conversely, L2 holders bought the same branded token from the same issuer and, under Option B, take a ~73% hit for having used a bridge that Kelp configured.
Until Kelp decides, mainnet rsETH trades on secondary markets at whatever the marke thinks the weighted average outcome will be, which is why the price has been uncomfortably jumpy.
If you hold wrsETH on any Layer 2 (not on Aave)
This is the category with the most to worry about, and it’s worth being direct about it.
The token in your wallet is currently backed by a pro-rata share of 40,373 rsETH sitting in a drained adapter, split across 152,577 rsETH of total L2 claims. That is a backing ratio of 26.46%. If Kelp goes with Option B and no external recapitalization arrives, that is the recovery ratio — you get back roughly a quarter of what you held, in rsETH terms. If Kelp goes with Option A, you get back roughly 85%, matching mainnet holders. If Kelp or ecosystem partners contribute capital to plug the hole, the number improves for everyone on this side of the bridge.
There is no action you can take that improves your position here. The recovery is being negotiated in governance, not in markets. Selling on a secondary DEX today locks in whatever discount the market has priced, which as of now sits somewhere between the two scenarios. Holding preserves optionality on whichever outcome ends up larger.
Redemptions back to Ethereum are currently gated. Kelp’s core contracts are paused. Even if they weren’t, redeeming at the pre-exploit rate isn’t going to be available because the adapter cannot honour it.
If you supplied WETH on Aave on Ethereum, Arbitrum, Base, Linea, or Mantle
Here is where the contagion concern lives, and here is where most confusion is showing up. You did not deposit rsETH. You deposited WETH. Why is your position being discussed in a bad-debt report?
Because the attacker borrowed real WETH against the unbacked rsETH they created. Roughly 82,650 WETH worth $190 million left the system as loans. Those loans are backed by collateral that may be worth far less than its book value. When the oracle catches up and those positions get liquidated, the liquidators can only recover whatever the rsETH is actually worth. The difference — the shortfall — becomes bad debt in the WETH reserve. Bad debt in a reserve is absorbed by the suppliers of that reserve, pro-rata. That’s you.
How much you’re exposed to depends heavily on where you supplied. Aave’s modelling:
- Ethereum Core WETH: Under Option A, 1.54% shortfall. Under Option B, zero.
- Arbitrum WETH: 3.11% under A, 26.67% under B.
- Base WETH: 3.00% under A, 23.28% under B.
- Linea WETH: 0.24% under A, 2.68% under B.
- Mantle WETH: 9.54% under A, 71.45% under B. Mantle is the most concentrated exposure because the reserve is small relative to the rsETH that was deposited there.
- Ink WETH: 2.23% under A, 18.00% under B.
These numbers are not live losses yet. They are projections of what would hit the reserve if liquidations proceeded today at the adjusted rsETH price. The Aave DAO is exploring coverage from its treasury (around $181 million in assets, $62 million in ETH-correlated holdings) and from ecosystem partners to backstop at least part of this.
You cannot currently borrow against WETH collateral on the affected chains — the WETH reserve itself was frozen on April 20 as a precaution. You can still repay loans and withdraw, subject to reserve liquidity, which on Ethereum, Arbitrum, Base, Linea, and Mantle is currently at 100% utilization. At full utilization, the pool cannot hand you underlying WETH on withdrawal; your options narrow to waiting for borrowers to repay or for someone else to deposit. This is why rates were adjusted: to bring borrow costs down and encourage repayment, not punishment.
If you supplied wstETH on Aave
Your exposure is far smaller than WETH suppliers but not zero, and it is concentrated on Ethereum Core and Arbitrum. Those are the only markets where attacker positions borrowed wstETH — a total of 821 wstETH, against 89,567 rsETH of posted collateral. Under Option A, roughly 1,074 wstETH of bad debt hits Ethereum Core (0.10% of the reserve) and 87 wstETH hits Arbitrum (0.44%). Under Option B, Ethereum Core is untouched and Arbitrum’s shortfall rises to 3.03%. These are recoverable levels without structural intervention.
If you staked aWETH in Aave’s Umbrella module
This is a narrow but important category. Umbrella is Aave’s automated bad-debt backstop for Ethereum Core reserves. If Option A materialises and Ethereum Core WETH takes a shortfall, Umbrella is designed to slash automatically to cover it — roughly 23,507 aWETH ($54 million) is available against a projected $91.8 million shortfall on Core.
Aave’s own risk providers are recommending the DAO pre-emptively pause the Umbrella module. A paused module blocks deposits, withdrawals, transfers, and slashing, though rewards continue. This is actually a protective move: a paused module is not counted as slashable, so no automatic slashing fires. Any coverage would then have to be approved manually by governance, which gives stakers visibility before any haircut.
Note the cooldown mechanic. Currently 18,922 of 23,507 staked aWETH are already in the unstaking cooldown. A pause doesn’t freeze the cooldown timer itself, but you can’t actually withdraw during the standard 2-day withdrawal window if the module is paused. If you miss that window, your cooldown resets. Holding Umbrella pause for 22+ days would let all existing cooldowns cycle out, restoring the full staked balance as effective coverage. In plain terms: if you were trying to exit before a slash, a prolonged pause makes that harder. If you were content to stake, a pause makes slashing unlikely to fire automatically.
If Option B materializes, Umbrella is not involved at all. It doesn’t cover L2 deployments, and Ethereum Core is unaffected under that scenario.
If you’re a general Aave user on an affected chain with no rsETH exposure
Your funds are not in the blast radius, with one operational caveat: WETH withdrawals on Ethereum, Arbitrum, Base, Linea, and Mantle may be slow or partially unavailable because the WETH reserves on those chains are currently at or near 100% utilization. Other reserves — USDC, USDT, the non-WETH stablecoins — are functioning normally. Aave’s core contracts were not compromised at any point. Supply, repayment, and liquidation all work as designed. This incident did not originate inside Aave.
The decisions that will change all of this
Three things need to happen before any of these categories resolve:
First, Kelp has to announce the loss-allocation boundary. Option A, Option B, or something in between — some versions have been floated where certain L2s are treated differently based on when their wrsETH was minted. The Aave risk report models only the two clean endpoints; reality may land somewhere messier.
Second, the LRTOracle has to be updated to reflect the new backing ratio. Until that happens, rsETH on Aave is quoted at stale prices and no liquidations fire. The day it updates, health factors across 119 attacker and non-attacker rsETH positions move, and liquidators go to work.
Third, recovery efforts may change the math. The attacker still holds the borrowed WETH. The 40,373 rsETH Kelp recovered from the third (reverted) attempt could be returned to the adapter, improving the L2 backing ratio. Ecosystem partners including Aave service providers are coordinating on capital commitments. None of this is guaranteed, but none of it is ruled out.
What to actually do
For most depositors, the best move is no move. Aave’s freezes are containment, not seizure. Your position will be there when the dust settles. Selling into thin L2 liquidity today means realising a loss against a scenario that hasn’t been chosen yet.
The categories where action may be warranted are narrow: Umbrella stakers weighing a pause vote, WETH suppliers on Mantle and Arbitrum who want out of concentrated exposure before clarity arrives, and anyone holding L2 wrsETH who has a view on whether Kelp will socialise uniformly or not. None of those are clean decisions. All of them are bets on governance outcomes that are days to weeks from resolution.
Aave’s incident report says the protocol’s smart contracts worked exactly as they were supposed to. That’s true, and it’s also the part that matters least to anyone staring at a frozen position right now. The thing that went wrong wasn’t Aave. The thing that determines recovery isn’t Aave either. It’s a governance decision at Kelp, and until it’s made, every deposit in this incident is in a holding pattern defined by which column of the risk report you end up in.
Also Read: LayerZero Blames KelpDAO Team for Exploit, Links to DPRK’s Lazarus Group
