What are the two scenarios for handling Aave’s bad debt?

[cryptohog]

Q: What is the first scenario?
In the first scenario, losses are spread across all rsETH holders on Ethereum and layer-2 networks. This would result in about $123.7 million in bad debt and could cause rsETH to drop up to 15% relative to Ether. The impact is distributed, making it less severe for any single group.

Q: What is the second scenario?
The second scenario concentrates the losses on layer-2 networks like Arbitrum and Mantle. This would increase the total bad debt to around $230.1 million. While more contained geographically, it creates a much heavier burden on those specific ecosystems and could lead to stronger localized instability.

[encrypted]

higher bad debt in the second scenario increases the chance of cascading effects within those specific ecosystems