Lido DAO contribution to coordinated rsETH relief effort

Proposals
1

TL;DR

This proposal seeks DAO authorization for a one-time, capped allocation of up to 2,500 stETH to the Lido Labs Foundation operational funds multisig, which will forward the funds to a dedicated relief vehicle, alongside contributions from other participants, to be used solely to reduce the rsETH deficit — the root cause of the current dislocation — and mitigate disorderly liquidations affecting users.

Motivation

The April 18, 2026 Kelp’s rsETH LayerZero exploit created a material rsETH backing shortfall with broader second-order effects across integrated DeFi venues, including market rates pressure, elevated borrow/lending stress, and the risk of forced unwinds for users exposed through vaults and looping strategies.

Lido DAO has a credible interest in supporting a coordinated, narrowly scoped response where inaction would likely increase losses for EarnETH vault depositors and deepen negative spillovers across stETH-linked products and liquidity venues.

EarnETH vault has direct exposure to rsETH-linked market stress through its strategy allocations, and continued dislocation may push affected positions toward forced deleveraging or liquidation. In a downside scenario, losses borne by vault depositors could exceed the practical protection offered by existing first-loss mechanisms. The expectation is that, if sufficiently capitalized, the relief vehicle will cover the underlying rsETH deficit in full and make recourse to first-loss protection inapplicable; however, this outcome cannot be guaranteed, and depending on final recovery dynamics, both the relief fund and existing first-loss protection mechanisms may ultimately be needed. If a full-coverage solution is not reached, EarnETH vault may remain exposed to losses of up to approximately 9,000 ETH, which is why a vehicle that is sufficiently capitalised to cover the full deficit is materially preferable to a partial coverage.

The proposal

Lido DAO’s 2,500 stETH contribution may be made available only as part of a fully funded recovery package intended to close the rsETH deficit in full, rather than as capital for a partial recovery that leaves EarnETH vault depositors exposed to residual losses. This reflects the fact that, absent full coverage of the deficit, the EarnETH vault may remain exposed for up to approximately 9,000 ETH of losses.

Subject to final documentation, the DAO allocation would be governed by a defined mandate, capped notional amount, use-of-proceeds restrictions, post-allocation transparency, and a clear treatment of any unused or recovered funds. The relief vehicle’s mandate will be limited to covering the rsETH deficit itself only, rather than supporting position health factors, recapitalizing secondary losses, or addressing other second-order effects directly.

Given that the total deficit exceeds 100,000 ETH, this vehicle is expected to include multiple contributors, with Lido DAO participating as one of several stakeholders rather than as the sole backstop provider. The relief initiative is led by Aave service providers with indicative commitments from multiple other ecosystem participants.

The on-chain Aragon vote, if passed, will execute the transfer of 2,500 stETH from the Lido DAO Agent to the Lido Labs Foundation operational funds multisig.
Lido Aragon Agent 0x3e40D73EB977Dc6a537aF587D48316feE66E9C8c
Lido Labs Foundation operational funds multisig 0x95B521B4F55a447DB89f6a27f951713fC2035f3F

Lido Labs Foundation operational funds multisig will act strictly as a pass-through agent and is mandated to:

  1. Forward the full 2,500 stETH to the relief vehicle under the proposed mandate
  2. Publish the forwarding transaction hash within 48 hours of release.

Unused funds, if any, from the allocation are to be returned to the Lido Aragon Agent 0x3e40D73EB977Dc6a537aF587D48316feE66E9C8c, either by the Labs Foundation multisig or by the relief vehicle.

—

Budget treatment
This allocation is separate from the EGG 2026 budget. It does not draw from any existing EGG request, and does not reduce capacity for funded 2026 initiatives.

15 Likes
Authorise Loss Coverage Below the 1% Threshold For The Kelp Incident
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It is clearly in the interest of Lido holders to see a clean resolution to this matter; I strongly support creative initiatives from the Lido community to support a positive resolution of the matter.

However, I don’t believe it is reasonable or appropriate for Lido to make a contribution without receiving something of value in return for that contribution: perhaps a preferred/first lien claim against future Kelp DAO profits; perhaps a tranche of newly issued AAVE tokens from the AAVE treasury (private placement approved by AAVE DAO).

In fact, assuming other parties more seriously affected by the Kelp DAO incident than Lido are willing to offer Lido something of meaningful value in exchange for its emergency liquidity, I believe Lido should consider contributing substantially more than 2,500 stETH.

Basically, I think Lido should approach the question in much the same way as it would any other capital allocation decision: would it add more “net present value” than other potential uses of reserves. And I believe other distressed parties in this matter can or should be willing to offer parties such as Lido something of sufficient value to support the case for the investment of capital.

2 Likes
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Voting has started: Vote #200

The vote will be open for “For” or “Against” input until the end of the main phase: Apr 26, 20:09 UTC. Verification guide.

2 Likes
4

I really appreciate this proposal and support it. As a stETH and earnETH user I would like to see an opportunity to contribute to this rsETH relief effort. Maybe a more coordinated effort can be organised to allow other individual user to contribute?

2 Likes
6

I’m rather against this proposal

I understand the urgency and speed, especially since everyone needs to understand the risks and weigh them against the proposal.

I would only support the initiative to spend funds gratuitously if these funds are not allocated directly from the Treasury, but, for example, by reducing operating expenses, salaries, or research budgets (that is, the funds already budgeted should be allocated for this purpose)

However, I have several questions about the logic of the decision:

  1. About $3 million has already been spent on losses in a non-core experiment with vaults.
    If a $50-100 million hole appears tomorrow, will it be proposed to cover it from the Treasury?
    If not, where is the line drawn and how is it determined?
    I would like to understand the scope of responsibility and the approach to such situations.

  2. Who is responsible for the vault’s risk management?
    Significant funding was spent on research and development, but ultimately decisions were made that led to the accumulation of leverage in rsETH without proper assessment of the architectural risks.
    This looks like a serious failure – it’s important to understand where responsibility lies and what conclusions have been drawn.

  3. 2,500 ETH is only a small portion of the total deficit.
    There’s a risk that these funds won’t be enough to salvage the situation, and ultimately, both these funds and additional losses on the vault could be lost. How can we be sure that the proposed contribution is necessary and sufficient?

I’d appreciate detailed and prompt responses – it’s important to understand not only the current decision, but also the overall logic behind risk and treasury management (especially with such an urgent vote).

6 Likes
Kuzmich Delegate Thread
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In favor.

Every week the rsETH deficit stays open, the damage keeps compounding past the headline number — forced unwinds, liquidation cascades, trust in collateral quietly bleeding out. Leaving the hole unpatched isn’t neutral. It’s a choice to let losses socialize through contagion instead of through a capped, controlled vehicle — and that’s worse for depositors and for this ecosystem’s ability to underwrite risk going forward and future confidence in DeFi as a coordination layer.

What makes the proposal supportable rather than open-ended is the scoping. The mandate is narrow — close the rsETH deficit itself, nothing else — with a hard cap, a fully-funded-package contingency, use-of-proceeds restrictions, post-allocation transparency, and clear treatment of unused or recovered funds. That’s the opposite of a blank check. IMO it’s the bounded, auditable structure that separates coordination from moral hazard, and the right template for how the DAO should handle urgent situations like this going forward.

Timing matters too. A coordinated response now is cheaper — financially and reputationally — than months of slow bleeding. Builders are already stepping in (Ether.Fi, Ethena, Mantle, Golem, Frax, Tydro, Ink, with more on the way), and honestly that’s a real signal that this ecosystem can still act as one when it chooses to. Lido alongside them, proportional to its weight in the stack, is the right posture.

None of this substitutes for the lesson. The LayerZero/Kelp default-configuration issue deserves a serious post-mortem, and the whole stack needs to sit with what it revealed about trust assumptions in cross-chain messaging. But relief and accountability aren’t in tension — you do the first so the ecosystem survives to do the second properly.

Supporting the proposal as written. Lido is DeFi. DeFi United.

11 Likes
8

With most of the major players in the DeFi ecosystem contributing to this effort it makes sense that Lido does too. This is a matter long term sustainability and and concerns the reputation of the ecosystem as a whole (including institutional observers). The response on social media to these efforts are very positive. This is a time where DeFi as such shows that it is capable of responding to these existential crises.

7 Likes
9

Is this a donation? Or a loan? I’ve got it from some sources that the contributions to this fund from other players (i.e.: Golem) are actually loans, which makes sense to me.

4 Likes
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At a minimum, I believe Lido should additionally consider committing that it will not contribute to a (fully funded) recovery package on materially worse terms than any other participant in the recovery package. If other, similarly situated parties are issuing recovery funds as loans or with other residual claims or contingencies, then Lido should be entitled to those some benefits.

7 Likes
11

Thanks for the thoughtful questions @Kuzmich — these are important points, and it makes sense to scrutinize both the rationale for the proposal and the broader framework behind it.

On (1), the proposal should not be read as establishing a general precedent that proposals should/will be put forward to the LDO token holders on using the Treasury to absorb losses from any event that is not related to Lido core. This proposal is being put forward as contributors to Lido Labs Foundation have deemed this situation as exceptional because of the combination of factors involved: the scale of potential harm to EarnETH users, the direct exposure already sitting in the system, and the existence of a coordinated external recovery effort that could fully close the underlying deficit. If a much larger hole were to emerge in a different context, a proposal would depend on analysing the specific facts, the expected recoveries, the availability of other sources of capital, the risk of contagion, and whether a narrowly scoped intervention could materially improve the outcome versus simply socializing losses. However, this proposal and any future proposals will in all cases remain subject to the decision of LDO token holders, who have the final say over how assets in the Lido DAO treasury are allocated.

On (2), questions around risk management, decision-making, and lessons learned are absolutely valid. At the same time, contributors to Lido Labs Foundation understand that this is not something that should be addressed through rushed conclusions in the middle of an active crisis response. A proper post-mortem will follow once the situation is stabilized, so responsibility, process gaps, and corrective actions can be assessed carefully and in full context rather than under emergency conditions.

On (3), this concern is precisely why the proposal is structured the way it is. The 2,500 stETH contribution is not intended to be deployed into a partially funded solution that merely reduces the deficit at the margin while leaving EarnETH exposed. The proposal explicitly contemplates participation only as part of a recovery package that is sufficiently capitalized to close the rsETH deficit in full. In other words, the contribution is designed to be contingent on a full-coverage outcome.

5 Likes
12

This is a reasonable point, but the rationale for this proposal on Lido DAO’s participation is not the same as other participants in the relief vehicle. The proposal is based on the view that supporting a full resolution (with the amount proposed being contributed) is beneficial not only to depositors in EarnETH, which are directly exposed to the outcome, but also to stETH linked markets, where users may incur indirect losses.

Accordingly, the proposed contribution’s purpose is to help close the deficit and protect directly and indirectly affected users, including users indirectly exposed through stETH-linked markets. Please note that the proposed amount of the contribution is also lower than of other participants and far lower than the potential exposure, this results from the fact this contributions is proposed to be a donation, and not to loan. At the same time, the contribution should still be made on clear, transparent, and governance-approved terms, and token holders are right to expect that Lido DAO would not accept materially disadvantageous treatment without good reason.

In that sense, the objective is resolution rather than value extraction. Because Lido DAO was participating in this market and also benefits from an orderly outcome, structuring the contribution primarily around creditor-style upside would not be fully aligned with the purpose of the intervention.

5 Likes
14

I see the logic in supporting this decision.

First, it’s not so much about saving a single protocol as it is about reducing systemic risk. Ignoring such cases undermines trust in DeFi as a whole, especially among users who perceive it as an alternative to the banking system. Loss of trust here could be far more costly than current expenses.

Second, Lido has direct influence through Lido Earn. This isn’t abstract assistance, but an attempt to protect its own product and users from potential larger losses. In this sense, it feels like risk management, not just outside assistance.

Third, it’s an attempt to prevent a worst-case scenario. Yes, there’s a risk of wasting funds, but without intervention, the likelihood of significant losses remains high. The logic here is to try to limit losses in advance.

Of course, all the questions and doubts that other delegates raised are important, and I hope that the analysis will be completed and all the answers will be given in the near future.

4 Likes
Cp0x Delegate Thread
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Thank you for this fuller explanation of the thought process behind the proposal. If Lido’s willingness to contribute these funds as a donation is truly a determining factor with respect to the willingness of other parties to come to the table, I can get my head around the merits of this proposal.

Still, I do wonder: what was the basis for proposing 2,500 stETH as opposed to a higher or lower amount? And is there a possible alternative proposal where Lido commits more than 2,500 stETH but with the same associated benefits as other participants. If so, should the community be weighing this alternative proposal before approving the 2,500 stETH donation?

2 Likes
16

I got to be honest, there are many things with this proposal that I am opposed to.

  1. The timeline for this proposal is super rushed, not only was there no time for discussion before the proposal started (2hrs after the proposal was posted here, the vote was started) but it also started before significant players like Aave even proposed what they would contribute and under what terms (we saw some loan terms which would’ve been much preferable). In my opinion, we could’ve signaled for the proposal to go live and then wait a couple of days to gather more information and feedback before signing it off. Now, dismissing this proposal for details could have unwanted effects like the deal falling apart or hurting the reputation of Lido for actually doing something benefitting the whole ecosystem.

  2. There is no clear argumentation around why Lido’s 2500 ETH is the right sum, nor should we downplay the significance of that amount of money to the treasury. The time it will take to re-earn that money is going to be very long and compared to the entities that caused this (e.g. Layer Zero still has not clarified a number yet, Twitter assumes 5000 ETH), I would say Lido’s number is quite high.

  3. The 9000 ETH hole in Lido Earn mentioned in the proposal is not a hole in Lido, but mostly from users of the plattform that wanted to generate extra yield on their holdings for extra risk. The website clearly states that depositors have to be aware of the risks involved. I understand that while this is factually true, Lido should always have an interest to protect its users and make them whole. It surely also has a reputational interest as well as an interest to protect DeFi from the ripple effects on other stETH markets. However, I see this as a bigger problem: We are coordinating a full-on bailout for DeFi that is ultimately saving yield-hungry restakers and loopers - which now we send a signal towards that is “if the protocols I’m using are too big to fail, I will receive a bailout”. To me that sounds too much like the system many of us are heavily criticizing and tried to escape when we joined crypto.

  4. As also mentioned in a post above, I believe this is setting a precedence for Lido to use it’s treasury to protect any event that can have ripple effects on stETH related markets. The next incident involving a stETH-integrated product will produce the same coordination pressure and the same demand for Lido to lead with a contribution. Any of the arguments mentioned why the current situation is exceptional will also attribute to the next one. I am not willing to give that guarantee as a LDO holder. So far, we also have not heard any estimates or simulations on what the impact on Lido and it’s stETH related markets might be if this deal is falling through.

Given all these, my vote would have to be “NO”, to ask for a more reasonable timeline with a real discussion and more favorable terms for the “donation”. However, the initiative might still fall apart if Lido is not passing this proposal. The reputational damage for Lido to be the one who now makes this deal not work would be much worse than the original situation with EarnETH.

Therefore, I think the only right choice here is to conditionally vote “YES” on this proposal and expecting a proper post-mortem, including why Lido contributed on materially different terms than peer protocols as a “first-mover”, and an honest account of the EarnETH exposure path that explains why the residual ended up at DAO level rather than being absorbed by the product’s own first-loss design. I would also expect this to be a kick-off to design a binding governance framework for future ecosystem relief contributions. That framework needs criteria for when the DAO treasury can even be considered, caps, a clear rule on loan vs donation structure, and a sequencing requirement that directly-responsible parties commit concrete terms before Lido sizes its contribution.

If there are any future proposals like this, I will be voting “NO” on them, citing this proposal as being the exception we agreed on.

6 Likes
17

Vote: Against

I oppose using Lido DAO treasury funds as a grant to socialize losses arising from risks Lido did not create.

This proposal frames the allocation as systemic defense, but in practice it is a discretionary bailout of another protocol’s risk management failure, primarily benefiting Aave and actors exposed to Aave’s shared liquidity architecture. I do not think it is an appropriate use of LDO holders’ capital.

A few points:

1. This sets a dangerous precedent.
If DAO treasuries are expected to cover losses whenever a major protocol faces contagion, governance tokens become informal insurers of the broader ecosystem without mandate or compensation.

2. This is not neutral ecosystem support; it is effectively subsidizing Aave’s losses.
The “DeFi United” framing does not change the economic reality. The proposal asks Lido holders to contribute capital to help stabilize another protocol’s design failure.

3. Similar solidarity has not existed in other crises.
Large losses in other protocols did not trigger coordinated treasury bailouts. It is hard to ignore that “industry solidarity” appears only when a systemically important incumbent is affected.

4. If support is warranted, it should be structured as credit, not a donation.
A secured loan at market or penalty rates would be defensible. A grant is not. If Aave needs liquidity support, provide financing, not charity.

5. Lido should not absorb downside while others retain upside.
Private risk decisions should not be retroactively mutualized through third-party treasuries.

6. The proposal does not address the architectural issue.
Part of the scale of this event came from pooled liquidity socializing collateral risk. Asking outside DAOs to recapitalize that outcome treats symptoms, not causes.

I recognize EarnETH exposure, but protecting that exposure at the expense of the broader DAO treasury is not automatically aligned with all LDO holders.

If revised as a senior secured loan with interest, collateral, repayment terms, and priority over recovered funds, I would reconsider.

In its current form: No.

2 Likes
18

Man, your comment is so disconnected from reality that it’s honestly embarrassing to see you trying to take advantage of the situation by asking for AAVE tokens. Lido is one of the DAOs that actually has debt in rsETH — Lido has over $10 million in losses from rsETH in LidoEarn. We’re basically settling a $10 million debt with $2.5 million, and you come to me saying this is a bad deal???

2 Likes
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Those aren’t Lido’s losses, though. Those are potential EarnETH depositor losses. EarnETH holders are not Lido’s creditors. They are investors in an inherently risky, high-yield leveraged investment strategy that Lido has made available. The full extent of Lido’s direct exposure to potential EarnETH losses is the $3M first loss capital tranche that it committed to the EarnETH pool.

As noted in my original comment, I believe it’s absolutely in Lido’s interest to facilitate a resolution of this matter. I’d simply hoped to encourage further thought and reflection as to the size and structure (donation) of the proposed contribution, and whether alternative proposals might better serve the interests of Lido holders.

3 Likes
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The vote is still live and currently in the objection phase, so you can still vote here: Vote #200 | Lido

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I wanted to surface this here as well for visibility. Both @Leuts and @batuX have asked for more clarity on the curators’ role in the recovery, including Mellow’s contribution, given its role as curator of the EarnETH vault.

I’ve flagged this to @lidolabs-operations and asked the team to prepare a detailed answer on curator involvement and responsibility, so the question can be addressed properly in this thread.

2 Likes
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Hey man, EarnETH is a product provided by Lido, so the people depositing ETH to participate are essentially Lido’s customers. The risks you mentioned aren’t wrong, but it’s pretty clear who should be responsible for managing the risks of the product they offer, right? When promoting it, Lido presented it as a low-risk product, and if you look at it, the average return isn’t even 5%, compared to about 2.5% for regular ETH staking. This situation might not entirely be Lido’s fault, but it definitely raises questions about their responsibility and the trust customers place in them.

1 Like