Lido Says EarnETH had 9% rsETH Exposure as Kelp Recovery Tops $70M

Lido outlined the extent of its exposure to the Kelp incident, stating that only its EarnETH vault had direct exposure to rsETH. The exposure accounted for about 9% of the vault’s total value locked, while the broader Lido staking protocol remained outside the event. The team also said roughly $70 million in ETH linked to the attack has already been recovered through remediation efforts.

As the review continues, vault curators are working through both asset recovery and lending-market stress tied to the incident. 

EarnETH Exposure Limited to One Vault

Contributors explained that the Kelp incident created two separate problems for Lido Earn vaults. One involved direct exposure to rsETH, while the other centered on a liquidity crunch in lending markets that increased borrowing costs for looped strategies. The core Lido staking protocol was not involved in either issue, and both stETH and wstETH remain unaffected.

Only the EarnETH vault had direct exposure to rsETH, with the affected position accounting for about 9% of the vault’s TVL. Deposits into EarnETH and withdrawal processing have been paused by the curator while the resolution process continues. 

The Arbitrum Security Council recovered about $70 million in ETH resulting from the attack, according to the update. Recently, Lido Labs proposed allocating up to 2,500 stETH, worth about $5.8 million, to help reduce the rsETH deficit caused by the Kelp exploit. The contribution would only be made as part of a fully funded recovery package. 

Curators Reduce Debt as Lending Pressure Continues

EarnETH also holds positions beyond rsETH, including looping strategies that were affected by a jump in borrowing rates across lending markets. That market stress added pressure even outside the direct rsETH exposure. In response, the vault curator has been working to reduce leverage and adjust the composition of holdings.

The update stated that fast action placed the EarnETH vault in a more favorable position, with a major reduction in wETH debt positions. Those measures were aimed at managing elevated borrowing costs and easing pressure from stressed lending conditions. Further communication on progress is expected as the resolution process advances.

If the process takes materially longer than expected and withdrawal processing remains paused, an alternative withdrawal path may be introduced. 

DAO-funded Buffer Stands Ahead of Users

Lido also pointed to a first-loss protection mechanism tied to the EarnETH vault. If the vault records a loss after the recovery and resolution process is completed, a $3 million buffer funded by the Lido DAO treasury will be applied. That protection would be executed by burning the DAO’s vault shares.

This arrangement is designed to place DAO-funded capital in front of users if a final shortfall remains. The mechanism was presented as part of Lido Earn’s trust and treasury framework, which includes DAO oversight and treasury allocation. Any use of the buffer depends on the outcome once recovery actions and loss allocation are complete.

Other Vaults Continue Operating

The platform said DVV, GGV and EarnUSD vaults have no exposure to Kelp’s rsETH. It also stated that DVV and EarnUSD have no exposure to the lending market liquidity issues linked to the current stress. Deposits and withdrawals for those vaults are continuing as usual, and depositor rewards remain unchanged.

The GGV subvault, however, has exposure to looped staking strategies. Combined with the spike in borrowing rates, that structure has pushed the subvault into negative yield territory. Curators are taking regular actions to reduce the effect of those conditions while the lending-market crunch persists.

Users who submitted GGV withdrawal requests before the liquidity crunch will be redeemed at pre-incident valuation. Requests submitted later will be served once the liquidity crunch is resolved.