Unchained - The Chopping Block: Kelp DAO Hack Fallout, DeFi Socialized Losses & Arbitrum’s “Reverse Hack”

Episode Date: April 23, 2026

The Chopping Block crew and guest Monet Supply break down the $200M Kelp DAO bridge exploit, finger-pointing between LayerZero, Kelp DAO, and Aave, the wild “reverse hack” Arbitrum bailout, and what it all means for DeFi lending protocol risk, L2 trust, and the future of socialized losses in crypto. Welcome to The Chopping Block — where crypto insiders Haseeb Qureshi, Tom Schmidt, Tarun Chitra, and Robert Leshner chop it up about the latest in crypto. This week, we’re joined by Monet Supply, DeFi governance OG and current Spark brain, for a front-row seat to crypto’s hack-of-the-week: the $200M “Kelp DAO—LayerZero—Aave” debacle. If you thought DeFi risk was just about liquidations, buckle up. The team untangles the hack mechanics, the musical chairs of collateral across bridges and lending markets, and—most importantly—the prime time blame game: is it LayerZero’s fault for running a single-signer bridge, or did Kelp DAO or Aave drop the ball? We dive deep into the “socialized losses” mess facing Aave depositors (especially on L2s), unpack Arbitrum’s extraordinary move to confiscate coins back from North Korea (yes, really), and debate whether rollups can—or should—aspire to Ethereum’s censorship resistance. Finally, the squad discusses concrete remediation: rate limits, portfolio triage on risky collaterals, and the meta-game of DeFi crisis response. If you want the blunt, unfiltered, and occasionally spicy take on DeFi’s latest chaos, let’s get into it. Listen to the episode on Apple Podcasts, Spotify, Pods, Fountain, Podcast Addict, Pocket Casts, Amazon Music, or on your favorite podcast platform. Show highlights 🔹 Kelp DAO bridge exploit: $200M minted, North Korea fingered, DeFi lending protocols left holding the bag   🔹 Why LayerZero’s single-validator bridge design was a disaster waiting to happen   🔹 The Spider-Man meme comes to DeFi: KelpDAO, LayerZero, and Aave point fingers   🔹 Aave’s socialized losses headache: who eats the bad debt, L1 vs L2 depositors   🔹 Arbitrum’s Security Council “reverse hack” to claw back stolen ETH—feature or bug?   🔹 DeFi lending protocol design flaws, cascading risks, and pooled markets explained   🔹 Remediation: rate limits, fewer LRTs, and the “surface of death” in risk management   🔹 Rollups & L2s: why “Ethereum with training wheels” isn’t always the goal   🔹 What this week means for DeFi precedent, governance, and future hacks   🔹 DeFi’s growing pains: market demands bailouts, but who should actually pay up? Hosts ⭐️Haseeb Qureshi, Managing Partner at Dragonfly ⭐️Tarun Chitra, Managing Partner at Robot Ventures ⭐️Tom Schmidt, General Partner at Dragonfly  Guest ⭐️ Monet Supply, Head of Strategy at Spark Disclosures Learn more about your ad choices. Visit megaphone.fm/adchoices

Users should be responsible for the fact that, like, I was lending my Ethan Ave. Like, the risk is that you lose some of your money if one of the collateral scopes bad, but just pooled lending markets are not really, they're not configured in a way where they can handle this sort of like loss event gracefully. Like they either get recapitalized and everything's fine or they fail catastrophically and everyone loses all their money. Not a dividend. It's a tale of two clon. Now, your losses are on someone else's balance. Generally speaking, air drops are kind of pointless anyway. I'm named trading firms who are very involved.

D5.EFi protocols are the antidote to this problem. Hello, everybody. Welcome to the chopping block. Every couple weeks, the four of us get together and give the industry insider's perspective on the crypto topics of the day. Quick intro is Dr. Tom, the Defy Maven and Master of Memes. Hello, everyone. Next to you got Tarun, the Gigabrein, and Grand Puba at Gauntlet. Yo.

Joining us today, we have special guests, Monet Supply, the governance guru at Spree. Park. Hello. And I am received the head hype man at Dragonfly. We're early-station investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see chopping block that X, Y, Z for more disclosures.

Gentlemen, it has been an insane week. Turns out this is the biggest hack all week. There's a second hack after the drift hack that we saw the previous week. Now, there's a massive hack called Kelpdow. Now, Kelpdow, I had no idea what Kelpdao was until literally this week. But

turns out it is deeply interconnected into almost everything in Defi. So we have brought on Monet Supply. Monay Supply, you are a Defi governance OG, one of the OGs of OGs. Very briefly for the audience, can you describe for us what your background is, what you've lived through in Defi, and explain to us what happened here with the Kelpdow hack? Yeah, yeah, happy to. So I landed in the Defi space in 2020 on the back of a few years previously in traditional finance. And originally, of like posted my way into a job with MakerDAO by just kind of posting in their governance forums. And then the rest is history. And I've been working previously with a risk consulting company for about five years.

And then I moved over to Spark, which is a sub-down of Maker last year. But yeah, to get into kind of what's the state of play with Kelpdow and all the impact that it's had on the space since the weekend, Kelp Dow is a liquid restaking protocol. I think they have, well, they had a little bit over a billion dollars of TVL. So it's pretty major. And the vast majority of it was used as collateral for doing like looping trades essentially on places like Ave, Morpho, oil, or various other lending protocols. A looping trade, you can think of as like a kind of a levered carry trade effectively.

Yeah. Yeah. So you have this collateral that's earning. let's say 3% and you're borrowing, ETH at 2%, and you just kind of like amplifier yield that way. Pretty common trade in DFI. It's probably one of the biggest drivers of activity in TVL.

And Kelped out the quirk here, and this is where the vulnerability was kind of stemming from, is the bulk of the activity was on Ethereum Mainnet, but they also used bridging infrastructure layer zero to have their token be available on a broad range of external chains and L2s, places like Mantle, total plasma, arbitram, variety of others. There's a bunch of others. One of the other ones, which it was actually used very little on, but this is the source of the exploit, was L2 Unichain.

And there was a pretty sophisticated hack where essentially, we believe it was probably North Korea, was able to forge a message coming from Unichane back to Ethereum. So they were, even though there were not this many tokens on Unichain to begin with, they're able to kind of forge a bridge message that said, I've burned over 100,000 kelp Dow restaking tokens on Unichain. It unlocked that amount on Ethereum. So basically, without actually having any money to start with these, these hackers were able to get off with, yeah, bit over 200 million of stolen liquid restaking tokens. And because there's not even remotely close to this much liquidity where you you could sell that on a decentralized exchange without just crashing the price to zero very quickly.

The most efficient way to exit from these liquid restaking tokens, which they have freeze functions and various other sort of governance fail safes into a truly decentralized asset like Bitcoin or Ethereum, the most efficient way to do that was to post them as collateral on lending markets, on defy protocols, and then borrow the Ethereum. So that's basically what the, you know, kind of the start of the hack was, was stealing money from a bridge, posting it on various defar protocols like Abe and there was a few others with smaller amounts, and then borrowing out hundreds of millions of dollars of ETH with these tokens. Right. So, okay, so there's basically all this unbacked CalPDAO re-staking tokens that have been minted by,

presumably North Korea. North Korea can't sell them because nobody is, you know, there's just not standing liquidity to buy all this. And of course, everybody immediately sees, oh, somebody just hacked, cup down and like minted all these things out of thin air. But, you know, so the liquidity might immediately dry up. The price might immediately dry up. But the lending protocols are just sitting there kind of just they have their parameters. They're just kind of like, yes, we are willing to accept hundreds of millions of dollars at such and such rate because we believe that the right risk parameters for this liquid resaking to...

It's back to the ETH is supposed to be there somewhere. So it should be relatively safe to lend against this collateral because, okay, it might not be the most liquid thing in the world, but it's clearly high-quality collateral, right? That was the thinking when these risk parameters were set into AVE, in compound, and all these lending protocols. So North Korea basically borrowed against this fake collateral

that they minted through this hack and then ran off with the ETH. And of course, they're not going to pay back the loans because why would they? And so now you're in the situation that Ave compound, a bunch of these protocols, are stuck with bad debt. There is now this bad debt, these loans to North Korea that will never be paid back, and they have to figure out what do we do now. And one of the big questions is, okay, first off, whose fault was this? Who is to blame? And so now there's this gigantic, you know, the Spider-Man meme of the three Spider-Men pointing at each other.

That's where we're doing that right now in Defi. So the three players who are mutually blaming each other. So first is Kelpdow, right? So Kelpdow, they chose the parameters for all these. Sorry, not enough, they didn't do it themselves, obviously, but they chose the parameters for Layer Zero, the bridge. And Layer Zero, it was discovered, and they revealed this in their post-mortem, was that their bridge had only a single validator.

In Layer Zero, these are called DVNs. But basically, it's like a single private key that is signing these transactions. And it basically saying, like, yes, this happened. I looked at it on RPC or I ran a node and this is the correct state of the chain. And therefore, I'm willing to mint this many new tokens, right? So there was a single signer. Now, layer zero came out and said, this is not what we tell people to do. Go look at our docs.

They like do a little screenshot of their docs. And our docs, we say, don't do a one of one DVN. That's not best practices. That's super janky. And that's why this thing happened that got hacked. Okay. So layer zero says, Kelpdow's fault. All right.

Keltzau points at Layer And says, well, but hold on, motherfuckers. You guys actually ran the DVN for us. You guys, we paid you to run the DVN. And like, yeah, the one of one is one of, you are the one. You are the one of one that is signing our stuff. And you didn't tell us not to do that. Maybe it's in your dock somewhere.

But you didn't tell us not to do this. And you're the ones who literally got hacked. So now there's some peculiarities because they didn't actually hack supposedly the node itself. They hacked the RPCs at the node. It was a very complex, very fancy attack that North Korea executed here. But so, you know, they say, okay, well, this is clearly their fault, not our fault. So both of them are pointing the finger at each other, which makes it unclear. If somebody's been made whole here, who makes who whole, but both are saying not our fault.

And then you have AVE, which right now is the largest lending protocol that's been impacted by this. And AVE is just kind of like, well, we have, so the quandary for Avey is that they had, I think, you know, they had the risk parameters set that they allowed 300 million of this, you know, liquid restaking token to get borrowed. which is a pretty large number. But according to AVE, it's like, well, we have two set of stakeholders here. You've got the AVE holders on Maynet, and then you've got, or the AVE depositors on Maynett, and then you've got the AVE depositors on the L2s, right? And actually, Maynett took a much smaller loss on a percentage basis than the L2s. And so there's now infighting within Avey of, okay, if there's going to be socialized losses

here for Avey, who eats the losses? Is it, okay, the L2s are less collateralized than the L1. Therefore, the L1 holders, they're a separate group in the, you know, in like the bank pharmacy treatment and the L2s are a separate group or are these, are, is everybody parapesu? Everybody eats the haircut together. There's no precedent for this. I don't, as far as I know, I mean, Monet Supply, you tell me. But this is kind of like a case of first impression for what you do in the case of bad debt if

there's no bailout. Now, there may be a bailout, you know, for all we know, right now, Aves running around, trying to raise money to go and just unstuck the funds. Last wrinkle in all of this is that last night, Arbitrum announced that they had done an extraordinary recovery mechanism. I don't know what the term, you know, a special operation. And their special operation was such that they basically replays, using their security counsel, which is a 9 of 12 multi-sig, of people who are not part of Arbitrum Labs, or not part

the Foundation, this Security Council, which is voted in by governance, decided that they were going to, in a single transaction, upgrade the L1 bridge contract to allow a special transaction to go through that modified the state of the layer two to move the coins belonging to North Korea to a special burn address, which will then later be dealt with by governance. So they basically flipped a switch that allowed them to basically steal back the money or confiscate the money from North Korea, which is about 70 million on Arbitur, which is a very significant portion of the funds that were lost, which were, for whatever reason, North Korea did not launder the money yet.

They were just kind of sitting there. Immediately after this took place, North Korea started laundering the rest of the money, maybe unsurprisingly, usually a good feature. North Korea usually tends to be pretty good about that. But that also caused another layer of drama of, oh, my God, is this bad? Is this good? How do we feel about this, about Arbitrum, you know, making this extraordinary action? So huge discussion over the last 24 hours.

about what does this mean for Defi? Who's to blame here? And did we do the right thing? So I will pause there. A lot to process. Tom, why don't we start with you? Just in any order, take your read of the situation and what you think went wrong and what you think went right.

Yeah. What a mess. I mean, it just feels like one of those like cascading failure kind of things. You know, there's like this Swiss cheese model that people who build complex systems develop to try to mitigate these kinds of things where, you know, multiple different layers have to fail in order for something really bad to happen.

and this feels a little bit like kind of what happened if we saw like many holes line up and this kind of propagate through. I guess I do kind of generally agree with me because that's a blame where it's like layer zero probably looks the worst than Kelptow then Avey and I think you can kind of debate a little bit of the ordering of those. But ultimately to your point, there's like, do you have kind of a duty of care or who do you sort of have it to? Like who's really being compensated to ask for advice or service or whatever?

And here it's like, yeah, obviously if you're paying someone, to run this for you, you assume that they're going to be doing it correctly. And it feels like a little bit of a cop out. You know, if you pay your mechanic and they like break your card and then say, oh, well, you know, I, you should have gotten a second opinion or you should have had, you know, multiple different mechanics look at this. And this feels a little bit like that. I think it's obviously easy to, again, also point fingers at, you know, Avey. And there's a lot of debate back and forth around how do you treat these sort of pseudo-pegged assets like stable coins, liquidary staking tokens or staking tokens, there's certainly an argument to be made that, well,

hey, these should be still treated pretty conservatively. But obviously in practice, there's a very competitive market. A lot of these, these sort of carry trade yields are dependent on these things being treated, like, as one-to-one, you know, collateral with extremely high LTVs. And so ultimately, it's like, I find it harder to blame them when that is ultimately a lot of these things get treated. But I think a lot of the discussion also is now sort of centering around rate limiting and speed bumps and delays. I mean, it was funny. Like last episode, we were kind of joking that like, well, maybe the funds should take, you know, one or two business days to get from point A to point B. And now it feels like, you know, maybe that

was actually, you know, less of a joke than it should have been. So I think everyone shares a little bit of blame here. Like I said, you try to sort of plan for best cases, but ultimately in every system, there are a little bit of assumption, there are some assumptions and trust that get made for the sake of efficiency or for the sake of competition. And unfortunately that those kind of line up in a way that isn't great. Well, so there's no real precedent for like a multi-party failure in crypto, right? Every time I can think of when, you know, when the maker auctions didn't clear or when, you know, there's a protocol that, you know, what happened with drift, usually it's very clear who the

party is, who is on the hook. This is really unique because it is genuinely unclear who is supposed to pay remuneration. And there's an assumption always in crypto. is that you must always remunerate if you can, right? There's basically nobody talking about like, well, you know, you were lending, you took risk. This is what, what are the risks were? Was that like, yeah, bad things can happen to your, like nobody's even contemplating that being the answer is this thing not being made whole. So what do you think is, you know, much less like, okay, who's to blame?

You say, okay, there's zero number one, kelp down number two, and then Avey number three. How do you think the adjudication of who pays up? because the story being circulated on Twitter is that everybody's lawyered up and everybody is like, you know, everybody has a lot of money to pay for general counsels now.

And they're all being like, yeah, you definitely, you do not accept blame. You do not say that we were responsible. You do not say we're going to, you know, everybody else has a pay but me. So you've got a Mexican standoff going on right now from a liability perspective.

What do you think should, should the norm be about what do you do in situations like this? I mean, you know, frankly, I like do maybe side more in that kind of, you know, not quite libertarian approach, but hey, if you are underwriting this as collateral, you know, you're underwriting as collateral. And like that is, you know, codified into the smart contracts.

You can look at it with your own eyes. You can decide, hey, is this worth the risk for me lending or not? It's not like there was some bug that was exploited. And I think that gets a little bit cutsy around, well, you should have, you know, noticed the zero day in the smart contract where you put your, you know, assets in the vault. But here, we've seen stable coins, epeg and other issues with sort of liquid staking tokens in the past. And so you should be thinking about, hey, if I'm, you know, what risk am I sharing with other people in this. And how do I sort of think about socialization there? I think like for the, you know, everything else, it feels like it's more like a bilateral kind of kind of issue of, hey, if I paid you for this service, it feels like there's more like destruction to the equity value of, you know, my company or to the value of my token versus, hey, this is something that I need to sort of get paid back to, you know, stakers or something like that.

But again, it feels also maybe a bit dissimilar that like everything was pretty, you know, clear cut and people were okay underwriting, you know, the risk assumption. and security assumptions in every individual part of the protocol. And in this case, okay, they're happy to be this, like I said, this weird, you know, sort of exploit in this RPC message. And that sort of causes this cascade. But, you know, again, that's something that you could have modeled and thought about ahead of time and people agree to take that risk when they deposited. I would say it's just a bit more challenging with sort of an Abe style pooled lending market

because just taking this example on Abe course, so there was a bunch of RSETH, this packed liquid staking token that was used to borrow eth, but then there's also a lot of eth that was used to borrow stable coins and stable coins that were used to borrow other stable coins. So like it's not basically if like someone doesn't stand in to like try and create like a resolution or something, like if any of these links in the collateral chain lose too much money, like let's say maybe 20% of their value or more, like it just cascades through every other part. And I mean, the end result is the entire market would just have a catastrophic failure. And like the amount of losses would become much, much greater than what it started with.

So yeah, I think it's, you know, users should be responsible for the fact that like I was lending my Ethan Ave. Like the risk is that you lose some of your money if one of the collateral scopes bad. But just pooled lending markets are not really, they're not configured in a way where they can handle this sort of like loss event gracefully. They either get recapitalized and everything's fine or they fail catastrophically and everyone loses all their money. So, okay, so Monet, how would you characterize the ordering of who's to blame and how you think remediation in a situation like this is pretty complex ought to be done? Yeah, I mean, I guess, you know, I'm not privy to any sort of like agreements and stuff that these people have, you know, had between each other as part of their bridge. operations and stuff of this nature, but I'm guessing that layer zero has like terms and conditions if you're using their DVN where like they're not actually accepting any liability of whether or not

they're doing a good job. So legally, I'm assuming Kelp Dow is probably the most culpable. They chose the DVN setup. It's their product that lost the money. But the flip side of this is that Kelp Dow is by far worth the least of any of these projects. It's, you know, sort of commodity business. I don't think there's really any realistic prospect that even before the hack that there was 200 million of like equity value, that would, you know, someone would be willing to bail out. What was the FTV of Kelptow? Does anyone know? It's, it's, what's the token called? I think it's called kernel. They do some other stuff on BSC, I think. So not much. Yeah, I mean, I'm imagining, it was like less than 100 million.

Okay. So yeah, they definitely can't pay even in the universe where we decide they're at fault. Yeah. Layer zero, you know, they're a much more successful project. Maybe they could pay, but like probably, you know, from like a legal standpoint, I'm assuming they covered their ass pretty well. So they're not going to be willing to. That kind of like breaks the seal too of like now whenever they're providing DVN services or like if their documentation isn't good enough, like they're accepting all of this open ended liability, which is. I mean, yeah, I don't think anyone could accept that. So that it makes sense that they're going to hold firm. And then maybe the least culpable in a sense, but like the closest to the user's money is Avey. So like, you know, I really, I think as like a lending protocol, if you're relying on all of your dependencies to be doing a good job,

like you're kind of not doing as good of a job as you should be doing. you know, the buck kind of stops with you as the lending protocol operator. So people have discussed rate limits. It's something that like Spark, we've had these for years where you can only deposit so much of an asset per day. There's plenty of solutions that, you know, in hindsight could have significantly reduced the impact here. And I mean, I think, you know, I'm sure Avey is going to be looking at a lot of these like risk remediation things. We're looking at it. I'm sure compounds, everyone else in the space is going to be just like thinking of how do we

lock everything down as much as possible so that even if our dependencies get hacked by North Korea, like we minimize the losses. So you think the answer is basically AVE was facing the customers, right? So like, you know, if you're kelp Dow, like, well, you know, the people who hold the real RSETH are fine. It's only, you know, the people who got the fake RASI that are in trouble. And then if you're layer zero, you're like, well, you know, our customer is Kelpdow and maybe Kelpthau's upset, but like,

we have a contract with them and maybe they terminate the contract and like boohoo. But like our customers are not AVE users. Those are not the customers of layer zero. And so your claim is like, well, you know, AVE was the one that actually owed the duty of care to the AVE depositors, the ones who are down. They are the ones who ultimately cashed out North Korea. And so it's on AVE to pay people back. Is that more or less a good summary of your position? Yeah. I mean, it's maybe maybe. I would put it like a little bit less in like a moral or like philosophical standpoint, but just like ABE is the only one who is close to the users and also has even like a remote

capability of paying people back. So more than the second part I agree. They have a much bigger market cap. They're probably better capitalized. So it's it's plausible that they can pay people back, whereas it's not really plausible that zero has a high FTV, but much lower much lower market cap than Avey does. So that part I agree. with, but I do think like we are setting a norm right now that is going to be remembered for a long time.

Like there's no way this is the last time. In the early days of defy, there were really not that many complex systems because, you know, like the maker auctions, it was just Maker. There's really nothing. There's no other input into Maker at that time. Now everything is connected to everything. So it's a lot more likely that failures become these kind of complex chained things that you have to kind of look back and say, okay, yeah, there are service provider agreements, but there's also the general market expectation of what's supposed to happen, right? Like the whole thing about getting bailouts, people expect to be bailed out, right? There's really nobody's contemplating, well, we just lose the money and boohoo and you learn

to do diligence better. People are, people know what the right answer is. The right answer is people get their money back. And they're just kind of waiting for the parties involved to get that answer because it's like, well, obviously that's what has to happen. So my point is that I think the way that we decide. And we, it's not necessarily us on a fucking podcast, but, you know, the people in the room or, you know, the lawyers are going back and forth, whatever they decide is going to be more creating for this industry. I mean, I'm curious what you think of that, Meney.

I mean, I think you're probably right. Whether this particular situation is going to be conducive to, like, creating good precedence. I'm definitely less convinced. Yeah. I mean, I think there's, you know, good arguments that, like, layer zero and kelpdow from like a moral standpoint of like, like, who is most at fault, they probably are it. But it's just because like, because you're not actually, I think there's a very low probability of actually getting any money out of them. I feel like it'd be more productive to just say, okay, kelp, Kelpdow's a zero. Layer zero is riding off into the sunset.

Like, what do we do as Abe and then maybe the chainie? ecosystems, Arbitrum with the 30K-E that they reverse hacked. Some of these other chains where ABE is operating. Is that the legal term now, reverse-hacked for that? Hackback? I think that's your term. All right, Turin, what's your take? Who's at fault?

And what do you think ought to be done in remediation? I am not a legal expert or a lawyer, so I don't really even want to. There's no law. There's no law governing. To be honest. but I will say the following. I agree. There was a really good tweet by Doug Colquitt,

who we've had on the show before or the weekend, about how this sort of makes the roll-up-centric roadmap look kind of bad because it kind of says, hey, either the L2 assets are sort of junior to the main net assets or vice versa, and you don't really know kind of the kind of mezzanine structure, like the waterfall structure that's implicit in the L2 roadmap, right? like the ability to call the L1 to withdraw is not always available to you, as the Arbitrum thing shows.

But it also kind of shows, hey, the losses can be unevenly distributed, despite me thinking I had the same asset. Now, the other thing that is kind of scary to me, and I still have not seen a full analysis of, and I imagine this, to me, this is the biggest security thing, is the way that the exploit seemed to have. worked is like I had this 100k-ish eth that existed that was locked in a OFT contract like the bridge contract and basically there was a way to forge messages such that the nonces didn't agree which sort of suggests that the client either was completely zero-dayed and like injected something such that you know the entire software stack that was running like layer zero whoever was running the D. VN was either completely owned like their, the attacker had root access to their machine,

changed the Geth binary, ran a malicious Geth binary, and generated this thing, or they found some zero-day and Geth that no one knows about. They said that they hacked the RPCs and replaced the Geth with their own miners. Yes, but my point is, how did you do that? That means you got root on the Vvalator node, basically. On the RPCs. Yeah, yeah. On the RPCs, yeah.

So that's kind of very, very. scary. That's even scarier to me because like, okay, well, aren't there other fucking DVNs run in the subnet? Like, I could very easily imagine there's like a much bigger attack surface area that people haven't kind of fully explored. I don't think the answer has been satisfactorily given that like everything else is locked down. Right. Like I think that to me is the scariest part. The other thing is this is much, this is even crazier than the drift stuff. Because in the drift stuff, it's like I replace the the signing contract in a way that is very legible. Even though I understand that they did this malicious attack,

I can actually look at the entire trace and tell you exactly what happened. Here, there's some injection step that I don't understand whatsoever, and there are still billions of dollars of assets using the same framework. So I'm just like personally a little bit, very paranoid about this whole setup. And yeah, it is a kind of interesting thing in that the roll-up roadmap implicitly defines a weird waterfall structure for the end users of these protocols, whether they're bridging,

whether they're borrowing, whatever. There's also another thing. But this is not canonical bridges, right? This is like layer zero's bridge. Yeah, yeah, yeah, for sure. It's not like the actual L2 bridge. Yeah, but the canonical bridge can go freeze your assets as you just learned with the Arbitrum.

Because you're talking about the arbitrage from the arbitrage is not. Yeah, yeah, yeah, yeah, yeah, sorry. I'm just saying like all of these things show there's like some implied waterfall structure, right? Like if I were to like codify this and draw a little flow of funds diagram, the roll-up roadmap has the most fucking complicated flow of funds diagram and you can't even tell me it's actually, it feels like it's a decision tree that keeps branching. There's not like a, oh, here's the end of the flow of funds diagram.

That level of complexity is actually really crazy, right, to, to, to, to, to, to, to, to, to, to, to, to if you, you know, until, unless you kind of figure things out. The other thing that's interesting to me is that implicitly, these bridge hacks effectively say that like lending protocols are with 99% probability they're holding a collateralized asset, but they have this one percent making up the numbers. But like there's some probability that it's actually undercollateralized and it's effectively unboundedly under collateralized, right? And that risk is actually, especially in these cross-chain type of things, I think the expected value, you know, this is definitely the expected value of that was computed wrong, right? And I think like that, that aspect is very hard to deal with. I agree with Monet that like you basically have to have isolation plus chain, like, knowing the entire chain of mints and like being able to kind of like halt at a certain point and have restrictions. Like there's obviously going to be a lot of changes. But.

I'm still very scared about how the attack happened. This one's feel, does not feel like some of the attacks the last few weeks where I'm like, okay, I really understand the full end-to-end thing. I really don't understand how this RPC injection happened in a way that's satisfactory. And like maybe someone out there does right now, right? But that part is very scary to me. That part I also think could be the first real like AI thing where like I, how did I craft the malicious binary that ignored. non-308. Well, as in, how did I craft the entire binary, like that, that did that.

That actually is quite non-trivial, and you could imagine that's a very good AI test. Right. I mean, if they got root on a RPC, they could reply. I guess I'm not following because they didn't take control over the deviant itself. Well, they had to make them malicious binary. And they also had to not check any state routes, right? Like, if they check some state routes, okay, maybe there would actually be some proof evidence of, like, how this was done. Yeah, yeah.

So, like, the state root check was missing. It's not itself running anything that was... Right, but how do I construct the binary that does that is not necessarily trivial, that does the exact non-steps that we saw. And there's multiple ways you could have done that. And that is, to me, what is scary about this whole thing. Right. So many people, I think there was a Dune dashboard going around that showed all of the one-of-one Dvins,

and there's quite a lot of them. And of course, like, some of these people are doing a direct contravention of what Lair 0 is recommending. Many of these people, though, layer 0 is running the DVN, that is one of one. There's a bunch of people who are running two of two. A lot of people were like, well, you know, everybody quickly moved to two of two.

That way, you know, it's secure. Well, that's why the not knowing how the RPC was injected is scarier. Because like, K of K doesn't matter if the injection method is being repeated. Right, right. If they have just a generalized ability to just, you know, pon you if they find where your, you know, where your thing is located, then it doesn't matter what the K is unless you have a much larger security surface area,

you're running very different software, very different operating systems or whatever it is. I mean, unfortunately, Larry Zero didn't give enough detail about the compromise path to give anybody else any confidence about how to avoid these kind of attacks going forward other than, okay, don't do one of one, right? And like, that was kind of what Layer Zero effectively blamed it on

or attributed the attack to is that, oh, it's because it was one of one. But, you know, to turn his point, maybe if it's true or two, North Korea could pop the two. So we don't yet have a great answer, although the fact that they only attacked one is probably good evidence that there was something idiosyncratic to RSE that made it the right target for this. Usually when North Korea blows something,

they blow everything. Well, there was something idiosyncratic to a unichane RPC for RSEs. Yeah, possible. That's actually... Right, right. But there's a bunch of... There's other assets go into unichenechrist.

chain as well. So I don't know. It's confusing. We don't have a great answer there. You know, the lending markets kind of, they made it one of like the most extractable opportunities, though. I saw someone had like a chart of like what were the sort of low threshold DVN bridge assets and then either how much dex liquidity they had or how much collateral capacity they had. And RS Heath was like far and away the most because it's listed on a lot of ABE instances with large supply caps. So it's kind of like a, it's like MEV of a sense where like

these lending markets were making it a very enticing target to hack. I mean, it's 100% MEV in the sense that I'm literally changing the ordering that the client is reading things. It's just a weird form of MEV because I can't tell why

the thing was accepted. That's the part I'm still like, I still find the other thing is like, what is the only real solution to this? Assume that people are going to just run these one-of-one things. A, you have some state-root verification every time. And a lot of RPC providers offer the state-rude verification. Like, that part I thought was a little...

That stuff can be fixed. The other is like... And I've seen some people in Solana Post-Rift talk a lot about this about, like, verifiable builds, like being able to, like, give... If anyone change the binary that the RPC is running, you can detect from a kind of verifiable build signature. But all of these things slow things down a lot.

And like, why did people love the layer zero? Yeah, either SGX or like a verified build where like the binary outputs a signature of itself with the output. Like you give it input and the binary just says signs in a certain way. So it doesn't need to be full SGX. There's like ways of doing it that are simpler. It's not necessarily giving you, verifying that I did the right computation. It's just verifying that the binary, the exact instruction set is the same. It hasn't been touched, right?

So you can do that more efficiently. But the thing is, why did people want to use these OFT things? It's because of speed, right? They didn't want to use the canonical leaders. They didn't want to wait, right? And I think a lot of the compromises from the speed stuff are going to come back in. We're going to come back to. There was a long time, right, where everyone was debating, like, how long should the withdrawal

period for an L2B? I think we now have a lower bound. Like, this attack gives you a time frame that, like, actually it needs to be more than X, or even for these kind of non, you know, I don't know that I fully agree with that. I mean, if you look at like Axelar or you look at, you know, some of the ZK bridges, like the latency is not bad. Or even wormhole.

Yeah, or even Wormhole. The latency is not bad. It gives you much stronger guarantees about the correctness of the state transition on the other chain. I think this was just genuinely like this is a very yolo construction for a bridge, right? Like you're just basically trusting one dude and the one dude has two hats on or has one hat in his hand and one hat on his head. So like this, you know, this was not a bridge. This was like a single signer, basically, who's just like, yeah, cool.

You know, it's like that the meme of the guy checking the thing of the door, like moving is, it was one of those. Now, it's like, if that were the case, then like, don't let people run this as a one-of-one or as soon as it don't take payment for doing it, right? It's software. Maybe people can go run and do it. But like, generally, I do find it like kind of, I don't know, a bit shallow when you develop or say, oh, you know, don't, you shouldn't have done it in this configuration. It's like, but you will ladder to this configuration. And like, maybe if you have some insane warning that people have to prompt through several times, as sometimes you do. If you are doing something really insane with your computer, that's okay.

But here it's like the developer also taking payment and say, yeah, this is great. One of one is fine, but you probably shouldn't be doing this. And like, that's kind of like the two-facedness of it. Yeah, you know, that's one of the reasons why I think there is a public perception that layer zero is the most at fault, regardless of whether there is a strict legal liability that can be imposed on them. I think the view is that like, look, you guys got hacked. It's like North Korea got in your shit. And you guys literally were being paid by them to run this bridge. Aligning your documentation is not a sufficient kind of mollifier to say like, oh, well, clearly Kelpeda was at fault.

Kelphtat was, you know, obviously to some extent at fault in making this choice. But I think it's massive extenuating circumstance for the fact that they were buying the service directly from Layer Zero. and layer zero was supplying it and layer zero was the one that got that got popped. So now that's it, I don't expect layer zero to pay back anything. I'd be very surprised if they did. I agree with Monet is that like the sort of the logic of the customer remediation is that look, yeah, they don't feel any obligation to like make AVE holders whole. Why would they do that?

And Avey does, right? It's sort of like if Lare Zor doesn't pay anyone back, layer zero probably is not going to get punished except in public perception. Like their business is going to continue on. But for Ave, if AVE doesn't pay people back, their business is in trouble. So I think there's a, there's a, there's a kind of realpolitik to like, who's going to hurt the most if they don't give in to finding some remediation path. And I think the answer to there, the reality is it's AVE because of their proximity

to the customer and because of the impairment of their core business. So just also to make this clear, because I don't know that we underscored this quite so much. If you're a deposit on Ave, right now you cannot withdraw. Because basically there's like the utilization. on Ave is 100% for the assets that people borrowed against. And so Ave, like, if you're a deposit on Ave, you're stuck until somebody figures out what to do here to put some money back in DaVe and allow people to start withdrawing, unless they allow rates to float really, really high, which they've not done.

There is a now semi-liquid secondary market for, you know, A. And some other assets I've seen. So it's like, you can sort of get a sense of what a haircut would be. What is the other trading? It's not as much. I've been watching this over the weekend a little bit. as like just a sentiment, like a gut check, it was like as much as like 10% or more,

I think at some point on Sunday, but now it's like 30 bibs or something. So it's tightening up. Yeah, people are not expecting to lose a lot of money, at least on the- 30-bips. That must have been after the ultram. Yeah, after the option.

It was. And also, you know, there's, it's like you mentioned earlier, there's like the kind of like the L2 versus L1, like where does the loss get socialized? We're also thinking there's... Which of the L2s are trading at a deeper discount? I imagine.

I think there's not as much of like a liquid market for most of the L2 chains, but yeah, like there's got to be some sort of baked in like, well, maybe L1 doesn't take any loss. Wow. Okay. So we got a nice little prediction market going. So, okay, market understands that the L1 depositors are going to be bail out at the very least. I guess question that, and obviously the arbitrage from, you know,

Yoink is certainly helping, right? It helps the math work much easier if that 70 million can be distributed back to the people who are facing losses. So I guess the next question, and this is Gavinized a lot of conversation over the last 24 hours, what do we think about arbitram doing this special operation to extract the ETH? A lot of people dunking on them. I actually saw, I think relative to previous times this happened, so I think the last we saw this happened was with Sway when their Dex Cetus was hacked.

This must have been like a year and a half ago or something. But since then, we haven't really seen anything like this. I, my perception was that the sentiment was actually very positive about what Arbishop did here, despite the fact that historically there's, I'd say the dunking ratio is usually like, call it, you know, two to one. Here I think it was kind of the other way around is that it was like more positive than negative, at least what I saw in public sentiment. Wanted to get your guys read how you think about this. I think the first time I've seen this happen for a layer too. Tom, what was your reaction to the bailout? Yeah, I guess similarly saw pretty positive sentiment.

I mean, I think it helps that nine of 12 for the multi-sakes like a pretty, a pretty, high threshold. Like, I think it's nine of 12, nine 12ths of validators in a network, you have agreed to do any invalid state transition. I don't think people would totally question that. And this just happens to be, you know, by arbitram is set up. And people know that when they, when they use arbitram. I also think in this case, it's also very obviously North Korea bad. It's pretty bright line. It's not, oh, it should be socialized losses or, you know, who is this person or whatever? It's like, no, do you want North Korea of the money or not? And I think in some respects, it's, it's literally falling the way the contracts are written in a way that is very legible.

So I don't know. I, I, I'm pretty supportive. Like, I think it's, I appreciate the sort of immune system kicking in of saying, you know, hey, this is not, you know, decentralization. But ultimately, you know, anything has some sort of threshold at which point that's consensus. And that's the way all these systems work. And in this case, this just happens to be the way consensus gets formed. Okay. So I'm going to guess we're all going to say this is good.

Does anybody think it's not good? Mene, you're good? I think it's good. You know, there's uncomfortable precedence sort of issues there. We're like, so this taking back, $70 million. I think we're all going to just say,

yeah, I think we're all just going to say, yeah, we agree that it's good because North Korea, fuck North Korea. But let me maybe give the devil's advocate because I want to vitiate the debate a little bit. So I think the counterpoint would be, look, maybe. in this case, you know that it's good, right? This is kind of like, let's throw somebody in jail

without a trial because we know that, we know they did it. We know that O.J. Simpson is guilt or whatever, right? But like, once you do that, you open the Pandora's box that you cannot come back from. The principle is worth defending. And the principle, you might think that this case is, you know, a bright line case, very obvious. There's nobody in the right mind would ever object to the fact that North Korea did it and North Korea shouldn't have the money. But when you start making that distinction, you will be surprised at who will come after you next, demanding that you do the same for them, whether it's a government, whether it's a regulator,

or whether it's somebody who claiming that North Korea has hacked them. And for all you know, we don't have confirmation yet that North Korea hack them. We just have, you know, Lazier has attributed it to North Korea, but they haven't even confirmed, right? Drift, I think, confirmed through, you know, these auditing firms that, yes, it was, in fact, North Korea. We're just pretty sure it was North Korea,

but we're not totally confident. So take that counterpoint. Give me the response to that, Manet. I mean, I would even, I think we should be open to taking it in the other direction. Like, did this just derisks the hyperliquid escrow for like all of their USDC? Like maybe it's even better than we think that they did this recovery because it is setting the precedent that they're going to like bail out all these other things that we like. That's actually something that we've, we sort of tiptoe into like a little bit of hyperliquid exposure here and there within the sky ecosystem. And that's a big risk factor that we're not very comfortable with, the three of four hyper liquid bridge.

But maybe it's maybe it's a bit safer now than it was. I don't know. I don't really have like a like a strong philosophical take about censorship resistance on L2s. Like I think if if you really, really value that like probably just work on L1 or Bitcoin or something like this. I think yeah, there's an argument that like if you've been. built your roll-up around still needing a security council and or like trapdoors and upgradable proxy on the withdrawal, unlike a lot of the pure ZK roll-ups, for instance, that are like the minimal ZK roll-ups that guarantee that, then that's almost like your terms of service

with your user, right? Like, why do companies want to build their own L2? It's because they want to enforce some terms of service. Terms of service is a form of censorship in a lot of cases. And I think that's a feature. Now, I think it's a feature that people didn't realize it. Like, a lot of people probably accepted those terms of service, like they do many other terms of service, and didn't realize that was implied in, right? Like, I think like that's more the reckoning. But yeah, that being said, I think like, yeah, if you're going to, if you really want censorship, you got to pay up fee and fees. Right. Like, I think that's fundamentally, that's kind of it. I think that there is a, the L2 dream of it kind of inheriting all these properties in L1

has always been kind of a nonsense claim because fine, I have an L1 withdrawal hatch, right? Like I can go take my money and withdraw. But like, what happens if in the withdrawal time window I get liquidated and then I don't get, you know, I don't get anything or someone sees my withdrawal request and like MEVs me on the L2 such that I get sandwiched such that very little money is left? I can't guarantee any of these things anyway. So, like, there's all this other form of, like, loss. Or if the multi-sync wakes up and, you know, signs you out of existence before you're...

Yeah, exactly. Exactly. So it's like, I think it's just more the L2 users are too poor to care about this. Fundamental, right? Like that... In some ways. In some ways. No, no, I mean, I think that is, right?

This dream of accessibility and being cheap. So the L-2s are for the pores. That's your takeaway. I'm not saying that. I'm saying like they're about accessibility, cheap fees, all of this stuff. You're not getting that for free. Like, you're not getting that for free. That what do you, you're giving up something for that, right?

And like, that's, I think, the thing, the uncomfortable truth people don't want to accept. Yeah. That's, at least that's how I feel about it. Tom, you want to jump in? Yeah. I mean, I think, I think it's funny how, I think like, like 10 years ago, it was very taboo for there to be, you know, multi-sics and security councils. And it's always an expectation or there's sort of a, maybe internal force pushing people to eventually move towards on-chain governance or true

immutability. And like, this was kind of this weird, you know, adolescent phase. And, and you can be here for a little bit, but eventually you got to get out of here. And it feels like now, you know, we're just full of all these, like, adult children that have failed the launch. And, like, all the governance systems have this kind of component in it. And, like, you know, people have talked about, you know, decentralized, you know, sequencers and all sorts of other ways to, you know, again, have true binding decentralized governance that mirrors maybe what we expect from an L1 and we just like haven't really gotten it. And the flip side is if you, if you don't get it, then obviously you're going to be expected to do stuff like this. So I don't know, it's, it's like if this was not the outcome that you wanted, then, you know, there are other ways to get about it. But if it's available and you built it, then of course you can be forced to use it at some point. And I think, you know, this kind of threshold isn't awful, but maybe it's worth kind of questioning, like, why are we sort of stuck in this adolescent phase still? So I actually embrace this.

I think that this is the right answer, which is that, you know, the idea that the L2s are supposed to be exactly like the L1, I think was always, it's not just a fantasy. It's like, why would you want that? You actually don't want that. The cornerstone of capitalism and of the proliferation of products is that the products can be different from each other and they can offer different properties, right? if you basically got a state that just said, look, we are going to copy and paste all the laws of California,

that is actually a failure of the American experiment. The whole idea of American experiment are these laboratories of democracy that each state chooses different laws, chooses different regulations, and they compete with each other. And actually people who prefer certain set of laws go live in California. People prefer other laws go live in Nevada. People live other ones go live in New York. And in the same way, the L-2s are at their best

and that they're most valuable when they take some features of Ethereum, but they really have genuinely different properties around governance. And some of those properties are, look, this one will respond to court orders. And maybe you want that. I don't want that. But if you want that, go to that roll up. But if you want the roll up that's going to decide, hey, I think this hacker is a piece of shit and we're going to take their money away.

If we figure out that North Korea was messing around in this chain, I actually want to be on that chain. I like that chain. That's a set of values that I'm excited about. So to the extent that, you know, Singapore and Dubai and, you know, all these different countries compete purely, almost entirely over governance, right? These are small cities, effectively, that become these financial powerhouses because of their rule of law, because of the particular choices they make.

To my point last week about how crypto is just like becoming a utility company and there's less innovation is the fact that we've gone from values to terms of service, right? Like, that's literally what the fuck has happened here. And so it's like, it's like unfortunate, right? Like in some ways and that like the real dream values are reflected in that, right? Like if arbitram says, guess what, we are now going to respond to all court orders and we will freeze any addresses that court orders that is a value wrapped in a terms of like there's a value wrapped in a connection. If Arbitram says we're not doing that, like tempo will do that, right? You're on tempo.

If a court demands that tempo goes and freezes your stable court address, they're doing it instantly, right? They're not, they're not going to die in their court. crosses or go pseudonymous in order to protect you. But Arbitrum Security Council, and these are a bunch of crazy security guys on the internet. Like, they're going to do, they're going to do what they're going to do. And if it's perceived that, oh, hey, now all of a sudden people, you know, the governments realize that this is an Achilles heel for Arbitrum. And you can use this to enforce whatever you want onto the Arbitrum state, then governance, which elects the people in Security Council, will vote those people out and vote in some

pseudonymous, you know, people with cat avatars. And we'll say, you're now the Security Council, you guys go off and, you know, make your best guess of who you think North Korea is and kick them off the chain. So I actually think that this is not an undesirable outcome because there are genuinely spaces where you want different properties, right? You want Fedwire. You also want Visa. You also want Ethereum and you want UCT. And they have different properties as systems that carry value. You don't just want one. It's not like, well, we only want Fedwire and nothing else should exist. And like that's the optimal state. that's effectively the same thing as saying everything should have the exact same properties as Ethereum. And if it doesn't, if it's not like Ethereum but faster and nothing else, then we failed as a community. I think that's not the right way to think about L2s.

Yeah, I think, I don't disagree. I think the problem is like there is no frontier, right? There is like there is no state where truly this, this idealistic version of what they were supposed to be. Yeah, it's Ethereum. There's no Ethereum. There's no, there was an idea that, well, we can do this, you know, in perpetuity and kind of keep extending. No, no, no. I mean, to his point, there's like the ZKL2s or the base roll-ups and there's like all this stuff that genuinely does not have security councils or governance in which case, how would you even do this?

Yeah, I guess that's fair. I mean, maybe those have, you know, kind of die. I guess they do still have, obviously, deposit contracts. And like, I don't know what the, you know, time lock or what the upgrade process for those are like. But, like, ultimately, they are still like multi-sick controlled. Right. Sure. Maybe some of them are.

Maybe there's one that isn't. But, you know, to the earlier point, you don't know because you don't care. because you don't want that. If you wanted that, you would go and be like, hey, can I find me an L2 that has these properties? And the reality is like, people might care a little bit, but they don't care that much, right? Mostly what they care about is that I want some good defy, I want good fees, I want a good U.X, I want the products I want to do. And it's like, look, if hyperliqu is using arbitram, I'll use arbitram. I'm fine with that. So on some level, like the market is also speaking here is that if people, if people, I would suspect to, you know, Mone's point is that

hyperliquid saw this and they're like, great, we're staying on Arbitram. We're not moving because we need this. We need a venue that is going to decide if North Korea comes after us, they don't get the money. That is actually a property we're looking for in a chain. And that may be a competitive advantage for Arbitram for all we know is that they start winning more market share because people are like, oh, Arbitrum has this credible commitment to making judicious decisions about freezing the consequences of big hacks. Yeah, look, look, look.

For the record, I'm not, for the record, I'm not to, I, I think it made sense. I'm just trying to say that there was a sort of, there is still a sense in the world that like roll-ups are supposed to be this, the spawn of the L-1 and like, perfectly replicated spawn. According to Vitalik six years ago.

Or recently. No, no, no. It's like there is, I don't think, I think that that's, you have this impression that people have changed. I don't think that's not necessarily true. Yeah, I mean. There is a lot,

there are a lot of people who are still very of this belief that the goal of a roll-up long-term has to be a replica. And I think basically, I posit there's like effectively an impossibility theorem result type thing of like you want the lower fees at some amount of time. You're just reducing some other property. You can't get everything for free. And like right now it's like a Rube Goldberg machine to try to like get everything for free. And it's like not.

It's clearly. Base roll-ups. Base roll-ups. Anyway, okay, last thing, before we wrap, before we wrap, let's talk about remediation. Every time something like this happens, we get punched in the faces in industry, the question is always, how do we get better? How do we prevent this from happening next time? Mani, let's start with you as a governance guru. What do you think we should do to prevent this situation from happening again? Yeah, there's, I mean, there's a lot of stuff that we already know works. So like rate limits

as a bridge, you should be rate limiting how fast tokens can be going and coming out. As a lending market, you should also be rate limiting how much people can put in new collateral. Like, when does a legitimate user need to post 300 million of collateral in one transaction? They don't. They're going to be willing to like drip it in over. Are there protocols that already implement some of these things? Spark, the protocol I work for, we already have had basically rate limits on deposits and borrowers. I believe there's some others. I think Fluid does this as well.

And are those market-wide or are those per address? Per asset. So it's market-wide. I guess theoretically you could do as a dress, but like we don't we don't tend to like value that a lot because people can just smurf it. But yeah, I think like rate limits are like super low-hanging fruit. Other than that, like you get into kind of tougher choices. Like do you actually want to have four or five different liquid restaking tokens or

do you just want to choose one or two that you feel? really comfortable with. We recently parted ways with, and we're continuing to kind of slim down our collateral portfolio because there's a lot of assets that are not bringing unique value. And we're thinking if we just cut these like LRT number three, four, and five, our users will switch to the ones that we still have, which has mainly played out. So after the low hanging fruit, you know, you have to take tougher choices. But I think there's after all these hacks, like, you know, it's, it's worth it to like think what can we gain by subtracting a lot of what we're doing. So the market may kind of self-correct here by just people losing confidence in the liquidity

or the borrowing capacity on these longer-tailed things. They dry up in TVL. TVL moves into the bigger assets. And that presumably means that there's more security in those assets. There's more safety. So if everything's in, you know, etherfi or whatever, then, okay, you know, they probably have a better bridge set up. They probably have better underwritable caps. Is that one way in which you think this improves? That's part of the thesis. And then as as like a stable coin or a lending protocol, like we look at something we call like the surface of death, which is like the number of individuals that are big enough of exposures to like cause a catastrophic loss where the whole protocol just goes upside down and ends. And in some respects, you can actually be better off

putting more of your exposure into a lower number of things. It also means that you have more time to give them proper ongoing due diligence. And, you know, you can kind of slim down to like a fewer number of teams who, like, potentially you can hold to a higher standard. So I think there's a lot of benefits to, like, taking a more focused approach to collateral selection. So isn't that also, yeah, isn't that also shown the other side? So let's say, you know, next week, North Korea goes and hacks another liquid restaking token

and does the exact same thing. But now everybody has rate limits on borrowing. but there's fragmented pools across the layer twos and layer ones and there's a thing over there and there's a thing over there and there's spark and there's Avey and there's compound and there's this. And so I'm like, I'm like, I start borrowing at the borrow cap for each protocol but the protocols don't talk to each other. They don't look at each other's borrow caps.

And maybe I can still saturate a pretty big hack over the course of just like the first day's borrow cap. How do you think about something like that? Because the market's fragmented. Yeah, I mean, risk is, you know, I think we, need to approach it a little bit more as like a team effort within defy. Like it's everyone's been very silent about their underwriting and kind of their their risk review process and like mapping out the different dependencies. So yeah, I mean, I think we should be considering if if there is a lot

of open borrow cap for an asset, that means that it's a much bigger target to be hacked. You know, similar to like if there's maybe Spark has only, you know, a small amount of exposure to this one asset so the leverage doesn't look that big, but then ABE and compound might have, you know, huge lending positions against it. So the risk that we're seeing over here in our little silo is not actually capturing the whole market. So I think that's that's a very fair point that you have to, you got to look at everything holistically.

And you can't control what the other protocols are doing. But like if you see something that's way sort of overweighted or like other people are kind of setting it up to be unsafe with their parameters and they're in. integrations, then in some cases, like, maybe your only way to win the game is not play. All right, Tarun, I'll give you the last word, given your Mr. Gauntlet remediation. And what do you think we ought to do differently beyond what Manea said? I mean, I think when I probably covered most of it, I think the main other things that are kind of important to keep in mind, right, is a lot of the biggest hacks just since 20,

have come from implicitly this implied peg aspect, right, of like this thing is pegged or like within some bounded regime of like one. Like these two things are constantly need to be equivalent. Like whether it's setting the Oracle equal to one exactly, whether it's a bridge treating the bridge asset as fungible with the underlying, whether it's when you're looping, a lot of the looping security comes from the fact that I'm usually doing these things on very similar assets. And I think the really building much stronger probabilistic intuition for these pegged like assets and thinking through the tail scenarios is actually really important because I do think like every time there's a bull market there's the sudden tendency to like be like, oh, okay, it's pegged. Everything's great. One to one to one. Let's go. Take 500 times leverage. Right. Like for, you know, I think that's not just true in crypto. Right. I think that's not just true in crypto. Right. I think. that's true and outside of crypto as well, it's just like crypto has a million pegged assets that are all sort of kind of the same thing, that are different facets of the same thing. And to Monagia's point about shrinking that surface, it's like, the more you shrink, the more

you can trust the peg. Right. And so this tradeoff between like how many different replicas versus how much I want to treat this as a pegged asset, and peg can come in, again, in many different forms. It's not just the Oracle saying these two assets are equal. it can be treating two things as like, you know, like I was saying earlier, like the L2 assets or junior to the main net assets, but the OFT token is treating them one to one on the Mitten Burns, then it's, you know, another implied peg. And I think having really thorough audits of what things are pegged and not pegged and being extremely clear about that and like then isolating what happens when they depeg, I think as a community, we all kind of know a little like one facet. here and there of that. But it's like, there's this huge diamond and we only know like six of the

facets. But the other thing that blows up is like this other facet that we just didn't acknowledge was implying a peg. And I think to me, that's the source of almost every hack ends up looking like something like that. And so I think if you squint enough and like that's where I think really, really assessing what you want to allow to be sort of this kind of peg like asset is extremely important. That's this collateral selection thing that I think is never going to go away. This is true in Tradify. It's just that in Tradify, you don't have that many pegged assets. It was a small number. So at crypto, inevitably in a permissionless world, someone sees someone with a successful pegged asset. There'll be 10 guys standing outside telling Claude to make them the 11th one, right?

Which is kind of what the LRT stuff was, right? It's the beauty of, beauty of crypto. All right. Manet, where can people find you? at Twitter. Twitter X. Beautiful. Okay. Well, thank you for your service, and we'll be looking forward to the resolution of all this.

Hopefully, everybody makes it out okay with no more than 30 bips by next week. But until then, thanks, everybody. Thanks.