1/ On April 18, an attacker drained 116,500 rsETH (~$292M) from Kelp's cross-chain bridge. rsETH markets on Aave and other lending venues were frozen shortly thereafter.
2/ EarnETH has direct exposure to rsETH through an Aave levered rsETH/ETH position amounting to approximately ~9% of the vault (~$21.6M). Elevated lending market utilization is also putting cost pressure on the vault's other levered positions.
3/ The EarnETH team and subvault curators are actively working to deleverage where possible and reduce risk across all strategies. The outcome for the rsETH position is dependent, among other things, on decisions and actions by Kelp, LayerZero, and Aave, specifically how losses are socialized, what recovery is achieved, and how Aave resolves potential bad debt and market freezes.
4/ EarnETH's “first-loss protection mechanism” ($3M funded by the Lido DAO treasury) will be applied if needed to cover vault losses by burning the DAO’s vault shares. The full extent of potential losses and extent to which this mechanism will be used will be assessed by the Growth Committee after receiving an official, definitive and sufficient explanation on the incident. See further details on the mechanism here: research.lido.fi/t/lido-earn-…
5/ Deposits and withdrawals are currently not being processed by the vault curator to ensure fair treatment for all depositors and to allow losses to be assessed and absorbed. If resolution is delayed, an alternative path will be to reopen withdrawals with the rsETH position marked to a maximum expected haircut, so depositors can exit at a known worst-case value rather than wait indefinitely.
6/ Lido contributors will post further updates as the situation develops. stETH and wstETH are not affected. The core Lido staking protocol has no involvement in this incident.