Kelp Unlikely to Share $292 Million Exploit Losses Across the Board

The likelihood of Kelp spreading the losses from its recent $292 million exploit to all users, rather than just those directly impacted, appears slim. According to a Polymarket contract, bettors are assigning a mere 14% chance to the protocol implementing a mechanism that would force rsETH holders on Ethereum, which was not directly affected, to share the financial burden with users on other chains. The exploit in question saw the theft of approximately 116,500 rsETH from a LayerZero-powered bridge, resulting in parts of the system becoming undercollateralized. This means some holders now own tokens that are no longer fully backed by ether (ETH). The concept of "socializing the losses" refers to Kelp redistributing the shortfall across all rsETH holders, rather than concentrating the losses among users and protocols tied to the compromised bridge. A notable precedent for this approach was set in 2016 when Bitfinex imposed losses on all users following a $60 million hack. More recently, derivatives exchanges have utilized variations of this concept through auto-deleveraging, where profitable positions are forcibly reduced to cover losses when insurance funds are depleted. However, Kelp's situation is more intricate due to the exploit affecting the reserve backing rsETH across over 20 chains, leaving losses scattered among different user groups and platforms. While some holders on affected networks face impaired backing, others remain relatively unaffected. Any attempt to equalize losses would necessitate coordination across chains, clear accounting of liabilities, and the willingness to impose losses on users who may not view themselves as affected. This complexity may explain why Polymarket traders are skeptical about the possibility of a system-wide redistribution.