Aave is dealing with the fallout from a major exploit tied to Kelp DAO, and risk analysts have now outlined two possible outcomes that could shape the platform’s stability. The incident began when attackers stole 116,500 rsETH tokens and used them as collateral to borrow funds on Aave, triggering a wave of withdrawals and exposing the protocol to significant “bad debt.”

The key question now is how those losses will be distributed. In one scenario, the impact is spread across all rsETH holders, softening the blow but risking a partial depeg. In the other, losses are concentrated on Ethereum layer-2 networks, which could create a sharper shock. Either way, the situation highlights a core weakness in DeFi: when one protocol breaks, the ripple effects can spread fast across the entire ecosystem.