Kelp Unlikely to Share $292 Million Exploit Losses Across Users

The likelihood of Kelp spreading losses from its recent $292 million exploit to all users is low, according to a Polymarket prediction, which gives a 14% chance of such an event. This prediction comes as the protocol considers how to manage the undercollateralized rsETH supply. The exploit, which drained approximately 116,500 rsETH from a LayerZero-powered bridge supporting the token across over 20 blockchains, has left parts of the system undercollateralized. Implementing a loss redistribution mechanism would mean forcing all rsETH holders, including those on the Ethereum mainnet, to share the financial burden. This approach has been used in the past, such as in 2016 when Bitfinex mutualized losses after a $60 million hack. More recently, derivatives exchanges have used auto-deleveraging, where profitable positions are reduced to cover losses when insurance funds are depleted. However, Kelp's situation is complex due to the exploit affecting over 20 chains, leaving losses fragmented across different user groups and platforms. Any attempt to redistribute losses would require coordination across chains, clear accounting of liabilities, and the willingness to impose losses on unaffected users, making a system-wide redistribution technically and politically challenging.