DeFi’s Blame Game: Kelp DAO, LayerZero & Aave’s Bad Debt - The Chopping Block

Transcript

Users should be responsible for the fact that like I was lending my ETH on Ave, like the risk is that you lose some of your money if one of the collaterals goes bad, but just pooled lending markets are not really uh 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 funds. >> Now, your losses are on someone else's balance sheet. >> Generally speaking, airdrops are kind of pointless anyways. >> Um I'm naming trading firms who are very involved.

>> I liked that ETH is the ultimate collateral. >> DeFi 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 intros. First you got Tom, the DeFi maven and master of memes. >> Hello everyone. >> Next you got Tarun, the gigabrain and grand poobah at Gauntlet. >> Yo. >> Joining us today, we have special guest Monetsupply, the governance guru at Spark. >> Hello. >> And I am Haseeb, the head hype man at Dragonfly. We're early stage investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see choppingblock.xyz for more disclosures.

Gentlemen, it has been an insane week. Turns out this is the biggest hack all week. There's There's There's a second hack after the Drift hack that we saw the previous week. Now, there's a massive hack called KelpDAO. Now, KelpDAO, 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 Monetsupply. Monetsupply, you are a DeFi governance OG, one of the OGs of OGs. Very briefly for the 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 KelpDAO hack?

>> Yeah, yeah, happy to. Um so, I landed in uh the DeFi space in 2020 on the back of a few years previously in traditional finance and originally I kind of like posted my way into a job with MakerDAO by just kind of posting in their governance forums and then the rest is is history and I've been working previously with 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 what's the state of play with KelpDAO and and all the impact that it's had on the advice space since the weekend.

KelpDAO is a liquid restaking protocol. I think they have well they had a little bit a 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 Aave, Morpho, Euler, various other lending protocols. >> So the bulk of the activity >> A looping trade you can think of as like a kind of a levered carry trade effectively. >> Yeah. Yeah, so you you have this collateral that's earning let's say 3% and you're borrowing ETH at 2% and you just kind of like amplify your yield that way.

Pretty common trade in in DeFi that's probably one of the biggest drivers of activity in TVL. And KelpDAO 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 LayerZero to have their token be available on a broad range of external chains and L2s, places like Mantle, Plasma, Arbitrum, 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 UniChain 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 DAO restaking tokens on UniChain. It unlocked that amount on Ethereum." So, basically, without actually having any money to start with, uh 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 could sell that on a decentralized exchange without just crashing the price to zero very quickly, the most efficient way to exit uh from these liquid restaking tokens, which, you know, they have freeze functions and various other sort of governance failsafes, 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 DeFi protocols, and then borrow the Ethereum. So, that's basically what the, you know, kind of the the start of the hack was was stealing money from a bridge, posting it on on various DeFi protocols like Aave, and there was a few others with smaller

amounts, and then borrowing out hundreds of millions of dollars of uh of ETH with with these tokens. >> Right. So, okay, so so there's basically all this unbacked Kelp DAO restaking tokens that have been minted by by presumably North Korea. North Korea can't sell them because nobody you know, there's just not standing liquidity to buy all this. And of course, everybody immediately sees, "Oh, somebody just hacked Kelp DAO and like minted all these things out of 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 a such and such rate because

we believe that the right risk parameters for this liquid restaking token, You know, it's backed to the ETH that's supposed to be there somewhere. So, it should be relatively safe to lend against this collateral because okay, it may it might not be the most liquid thing in the world, but it's clearly high-quality collateral, right? That was the That was the thinking when these risk parameters were set into, you know, Aave in 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 dollars because why would they? Uh and so now, you're in the situation that Aave, 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 first 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-Man 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 KelpDAO, right? So, KelpDAO, they chose the parameters for all of these Sorry, not not for 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 and they revealed this in their postmortem was that their bridge had only a single validator. In in Layer Zero, these are called DVNs, but basically, it's like a single private key that is signing these transactions. And it's basically saying like, yes, this happened. I looked at it on an 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. "In 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, "KelpDAO's fault." All right, KelpDAO points at Layer Zero and says, "Well, but hold on, 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 docs somewhere, but you didn't tell us not to do this. And you're the ones who literally got hacked." So, now there's 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 the North Korean executed here. But so, you know, they 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 going to be made whole here, who makes who whole. But both are saying, "Not our fault." And then you have Aave, which right now is the largest lending protocol that's been impacted by this. And Aave is just kind of like, uh, well, we have So, the the quantity for Aave is that they had, I think, the, 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, uh, according to Aave, it's like, well, we they have two set of stakeholders here.

You've got the Aave holders on mainnet. And then you've got or the Aave depositors on mainnet and then you've got the Aave depositors on the L2s, right? And actually mainnet took a much smaller loss on a percentage basis than the L2s. And so, there's now in-fighting within Aave of, "Okay, if there's going to be socialized losses here for Aave, 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 the in like the bank secrecy treatment, and the L2s are a separate group. Or are these Are are is everybody pari passu? Everybody eats the haircut together?" There's no precedent for this. I don't As far as I know, I mean, money 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 Arbitrum's 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 a extraordinary uh recovery mechanism. I don't know what the term is, you know, special operation. And their special operation was such that they basically replace using their security council, which is a nine of 12 multi-sig, uh people who are not part of Arbitrum Labs or are not part of 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 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 Arbitrum, which is a it's 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 uses tends to be pretty good about that. But, you know, that also caused another layer of drama of oh my god, is this bad? Is this good? You know, 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 take take your read of the situation and what you think went wrong what you think went right.

>> Yeah, what a mess. I mean, this feels like one of those like cascading failure kind of things. You know, there's like this like Swiss cheese model that you people who build complex systems develop to try to mitigate these kinds of things where hey, you have different layers have to fail in order for something really bad to happen and this feels a little bit like kind of kind of what happened and we saw like many holes line up and and and this kind of proper propagate through. Um I guess I do I do kind of generally agree with maybe consensus or or blame where it's like layer zero probably looks the worst then KelpDAO then Aave and I think you you can kind of debate a little bit of the ordering of those, but ultimately you know, to your point there's like do you have kind of a duty

of care or do you who do you who do you who do you sort of have it to right? Like right who's who you 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's it feels like a little bit of a cop out, you know, if you pay your mechanic and they like break your car 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 feels a little bit like that. I am I I think it's it's obviously easy to again also point fingers at you know, Aave and if there's a lot of debate back and forth around well, how do you treat

these sort of pseudo pegged assets like stable coins, um liquid re-staking tokens or staking tokens. There's certainly an argument to be made that well, hey, you know, these should be still treated pretty conservatively um but like obviously in practice there's a very competitive market um a lot of these these sort of carry trade yields are dependent on these things being treated like as as one-to-one, you know, collateral with with extremely high LTVs and so ultimately it's like I I I I find it harder harder to blame them when that is ultimately the way that you know, a lot of these things get get 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 I was we were kind of joking that like well, maybe the funds should take, you

know, one to two business days to get from point A to point B and but now it feels like you know, maybe that was actually you know, less of a joke than than it should have been. So I think everyone shares a little bit of blame here. Um like I said you you try to sort of plan for for for best cases, but ultimately in every system there are a little bit of assumption there are some assumptions and and trust that get made for the sake of efficiency or the sake of competition and unfortunately that does kind of line up in a in a 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 when the Maker auctions didn't clear or when, you know, there

there's a there's a protocol that, you know, what 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 you. Like nobody's even contemplating that being the answer is 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 your number one, Celsius number two, and then Ave 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, every 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, you know, everybody else has to 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 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 cuter and well, you should have, you know, noticed the zero day in the smart contract before you put your your assets in in in in the vault, but here we've seen stablecoins depeg and other issues with with sort of liquid staking tokens in the the and so you should be thinking about, hey, if I'm you know, what risk am I sharing with other people in this pool and 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 my token versus hey, this is something that I need to need to be sort of get paid back to to you know, stakers or something like that but again, it just feels also maybe a bit dissimilar that like everything was was pretty you know, clear-cut and people were okay underwriting you know, the the risk assumption and security assumptions in every individual part of the protocol and in this in this case, okay, they're happy to be this like I said this this weird you know, sort of sort of exploit in in this in this RPC message and that sort of causes this this this cascade but you know, again, that's that's something that you could have modeled and thought about ahead of time and and

people agreed to take that risk when they deposited. >> I I would say it's it's just a bit more challenging with sort of an obvious styled pooled lending market because just taking this example on Aave core. So, there was a bunch of rETH 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 stablecoins and stablecoins that were used to borrow other stablecoins. 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 it 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 ETH on Aave like the risk is that you lose some of your money if one of the collaterals goes bad but just pooled lending markets are not really uh 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 money 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 DAO is probably the most culpable. They chose the DVN setup.

It's their product that lost but the flip side of this is that Kelp DAO is by far worth the least of any of these projects. It's you know, sort of a commodity business. I don't think there's really any realistic prospect that even before the hack that there was you know, 200 million of like equity value that would you know, someone would be willing to bail out. >> What was the FDV of Kelp DAO? 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 >> So not much.

>> Yeah, I mean I'm imagining it was like less than 100 million. Like >> Okay. So yeah, they 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 a 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 Aave. 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 the lending protocol operator. So, people have discussed rate limits. It's something that like Spark, we've we've had these for years, uh 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 Aave is going to be looking at a lot of these like risk remediation things. We're looking at it. I'm sure Compound, everyone else in the space is like going to be just like thinking of how do we how do we lock everything down as much as possible so that even if our dependencies get hacked by North Korea, like we we minimize the losses. >> So, so you think the answer is basically Aave was facing the customers, right? So like you know, if you're if you're Kelp DAO, like, well, you know, the people who hold the real rETH are fine.

It's only, you know, the people who who got the fake rETH that are in trouble. And then, if you're Layer Zero, you're like, well, you know, our customer is Kelp DAO, and maybe Kelp DAO'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 Aave users. Those are not the customers of of of Layer Zero. And so, your claim is like, well, you know, Aave was the one that actually owed the duty of care to the Aave depositors. The Aave depositors are the ones who are down. They are the ones who ultimately cash out North Korea. And so, it's it's on Ave to pay people back. Is that more or less the a good summary of your position?

>> Yeah, I mean it's may maybe I would put it like a little bit less in like like moral or like philosophical standpoint, but just like Ave 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 like the >> 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 could pay people back, whereas it's not really plausible that, you know, their zero has a high FTV, but much lower much lower market cap than than Ave does. So, that part I agree with. But 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

DeFi, 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 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 there's really Nobody's contemplating "Well we just lose the money and, you know, boohoo and you learn to do due 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 cuz it's like "Well obviously that's what has to happen." So, my my point is that I think the way that we decide and we is not necessarily, you know, us on a podcast, but, you know, the people in the room or, you know, the lawyers who are going back and forth, whatever they decide is going to be norm creating for this industry. I'm I'm curious want to hear of that, Manny. >> Uh, I mean, uh, I I think you're probably right. Uh, whether this particular situation is going to be conducive to like creating good precedents, I'm definitely less convinced. Yeah, I mean, I I think there's, you know, good

arguments that like LayerZero and KelpDAO from like a moral standpoint of like like who is most at fault, they probably are it, but it's just because like uh, 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 KelpDAO is a zero. Uh, LayerZero is riding off into the sunset. Like, what do we do as Aave and then maybe the chain ecosystems, Arbitrum, uh, with the, you know, 30 30K ETH that they reverse hacked. Some of these other chains where Aave is uh, operating like >> Is that the legal term now, reverse hacked for that?

>> [laughter] >> Hackback? I think that's the legal term. All right, Tarun, what's your 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 comment >> law. There's no law governing anything. >> comment on this, to be honest, but I will say the following. I agree there's a really good tweet by Doug Colkitt, 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, the either the L2 assets are sort of junior to the mainnet assets or vice versa." And we you don't really know kind of the 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 have 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 exploits seem to have worked is like I had this 100 K-ish ETH on that existed that was locked in a

FT contract, like the this 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 DVN, was either completely owned, like their the attacker had root access to their machine, changed the geth binary, ran a malicious geth binary, and and generated this thing, or they found some zero-day in geth that no one knows about, there's like >> that they hacked the RPCs and replaced the the geth with their own binaries.

>> but my point is how did you how did you do that? That means you got root on the the validator node, basically. >> On the RPCs. >> On the RPCs, yeah. So, that's kind of very scary, that's even scarier to me because like, okay, well, aren't there other DVNs running this subnet? Like, shouldn't 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, cuz in the Drift stuff it's like I replaced the the the signing contract in a in a way

that is very legible. Like, even though I understand that they they did this malicious attack, I can actually look at the entire trace and tell you exactly what happened. Here, there's some injection steps that I don't understand whatsoever, and there are still billions of dollars of assets around using the same framework. So, I'm just like personally very a little bit very paranoid about this whole setup. And yeah, it just it is it is a kind of interesting thing in that the roll-up road map 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 >> Hold on. Hold on. But But this is not canonical bridges, right? This is like layer zeros >> Yeah. Yeah. Yeah. For sure. Yeah, but the canonical bridge can go freeze your assets as we you just learned with the Arbitrum thing. >> What are you talking about? You know, the Arbitrum the Arbitrum freeze is not >> Yeah. 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 look draw the flow of funds diagram, the roll-up road map has the most 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 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 1% making up the numbers, but like there's some probability that it's actually under collateralized, 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 you this is definitely the expected value of that was computed wrong, right? And I 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 you need 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 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 and like 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 nonce 308? Well, as in how did I craft the entire binary like that that that did that? That actually is quite non-trivial and you could imagine that's that's that's a very good AI task. >> Right. I mean, if they got root on a RPC, they could reply I I guess I'm not following because they didn't take control over the DVN itself. >> had to make the malicious binary and they also had to not check any state roots, right? Like if they check some state roots, okay, maybe there would actually be some proof evidence of like how this was done, right?

>> Yeah, yeah. So like the DVN is not itself running anything that was >> Right, but how do I how do I construct the binary that does that? Is not necessarily trivial. That does the exact nonce step 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 there was a Dune dashboard going around that showed all of the one-of-one DVNs and there's there's quite a lot of them that and of course like some of these people are doing it direct contravention of what LayerZero's represent recommending.

Many of these people though LayerZero is running the DVN that is one-of-one. There's a bunch of people who are running two of two, and a lot of people are like, "Well, you know, everybody quickly moved to two of two. That way, you know, it's secure." Um and then of course >> Well, that's why That's why the not knowing how the RPC was injected is scarier cuz like KFK doesn't matter if the injection method is >> Right, right, exactly. If If they have just a generalized ability to just, you know, pawn you if they find where your you know, where your thing is located, then um yeah, it doesn't matter what the what the K is unless you have a much larger security surface area or you're running very different software or very different uh operating systems or whatever it is.

I mean, unfortunately, LayerZero didn't give us enough detail about the compromised 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 LayerZero effectively blamed it on or attributed the attack to was that, "Oh, it's because it was one of one." But you know, to Terrence's point, maybe if it's two of two, North Korea could pop the two. So, we we we 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 uh RS ETH that made it the right target for this. Usually when North Korea blows something, they blow everything.

>> And they kind of blow everything. Idiosyncratic to a uni chain RPC for RS ETH. Like that >> Yeah, possibly. Possibly. >> Yeah. >> Right, right. But there's I mean, there's a bunch of There's other assets going to into uni chain as well. So, I don't know. It's It's confusing. We don't have a great answer there. Um >> You know, the lending markets kind of uh 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 bridged assets and then either how much DEX liquidity they had or how much collateral capacity they had, and RS ETH was like far and away the most because it's listed on a lot of Ave instances with large supply caps.

So, it's it's kind of like a It's like MEV of a sense where like because like these lending markets were making it a very enticing target to to hack. >> I mean, it's a 100% MEV in the sense that like it's 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 that's the part I'm still like I still find The other thing is like what is the only real solution to this? As Assume that, you know, people are going to just run these one-on-one things. A have some state root verification like every time. And a lot of RPC providers offer the state root verification. Like that part I thought was a little That that stuff can be fixed.

The other is like and I've seen some people in in Solana post root talk talk a lot about this about like verifiable builds, like giving being able to like give If anyone changed the the binary that the RPC is running, like you can detect from from kind of verifiable build signature. But all of these things slow things down a lot. And like why did people love the >> zero zero >> Yeah, either SGX or like a verifiable build where like the binary outputs a signature of itself with the output. Like you give it input and the binary just does 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 it's not necessarily giving you verifying that it 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 So you can do that more efficiently, but it But the thing is like why did people want to use these OFT things? It's because of speed, right? They didn't want to use the canonical bridges. They didn't want to wait, right? Like 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 L2 be? I think we now have a lower bound. The 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 I I know that I fully agree with that. I mean, if you look at like Axelar or you look at, you know, the some of the ZK bridges, like the latency is not bad. It gives you much Yeah, or 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 is 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 at the door like

moving his It It was one of those. Now all that being >> If that were the case then like don't let people run this as a one of one or as in they don't take payment for doing it, right? It's It's software. Maybe people can go run and do it, but like generally I I do find it like kind of I don't know a bit shallow when when you developers say, "Oh, well, you know, don't you shouldn't have done it in this configuration." I was like, "Well, you you allowed it in 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 LayerZero is the most at fault regardless of whether there is a strict legal liability that can be imposed on them. I think the the view is that like, "Look, you guys you guys got hacked. It's like North Korea got in your 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 Kelp DAO was at fault." Kelp DAO was, you know, obviously to some extent at fault in making this choice, but I think it's massive extenuating circumstances 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 said, I don't expect layer zero to pay back anything. I'd be very surprised if they did. I agree with Monet that like the the sort of the the logic of the customer remediation is that look, yeah, they they don't feel any obligation to like make Ave holders whole. Why would they do that? And and Ave does, right? It's sort of like if if layer zero 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.

Um so, I think there I think there's a there's a there's 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 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 just also to make this clear because I don't know that we underscored this quite so much. If you're a depositor on Ave, right now you can't 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 depositor on Ave, you're stuck until somebody figures out what to do here to put some money back in Ave and allow people to start withdrawing unless they allow rates to float really really high, which they

have not done. >> There is a now semi-liquid secondary market for, you know, A with and and some other assets I've seen. So, it's like you can sort of get a sense of what a haircut would be like similar to the haircut rate. >> It's 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 bips or something like this. So, it's it's tightening up. I think people Yeah. Yeah, people are not expecting to lose a lot of money at least on the uh >> 30 bips, that was that must have been after the Arbitrum Yeah, after the Arbitrum thing out.

>> 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 >> Wait, so the L2s are trading at a deeper discount. >> I imagine. I I think there's not as much of like a liquid market for most of the L2 chains, but but yeah, like there's there's got to be some sort of baked in like well, maybe L1 doesn't take any loss. So. >> Well, okay. So we got a nice little prediction market going. So okay, market understands that the the L1 depositors are going to be bailed out at the very least. I guess question that and obviously the the Arbitrum, you know, yoink.

It's 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 Gavin has a lot of conversation in the last 24 hours. What do we think about Arbitrum doing this special operation to extract the ETH? A lot of people dunking on them. I I actually saw I think relative to previous times this happened. I think the last time we saw this happen was Sui. Uh when their DEX uh Cetus was hacked. Uh this was 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 Arbitrum did here despite the fact that historically there's I think the dunking

ratio is usually like call it, you know, two to one. Uh 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 you guys' read, how you think about this. This is I think the first time I've seen this happen for a layer two. Tom, what what was your reaction to the bailout? >> Yeah, I guess similar to that pretty positive sentiment. I mean, I think it helps that nine of 12 for the multi-sig is like a pretty high threshold. Like I think if nine of 12 9/12 of validators in a in a network you know, agreed to do an invalid state transition. I don't think people would totally question that and this just happens to be you know, the way Arbitrum is is is set up and people know that

when they when they use Arbitrum. Um 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 to have money or not? And I think in some respects it's it's literally following the way that the contracts are written in a way that is is very legible. So, I don't know. I I I I'm pretty supportive. Like I I I I think it's I I 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 is 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 Does Does anybody think it's not good? Muneeb, you you good? You're good? >> I I think it's good. You know, there's uncomfortable precedent sort of issues there where like So, this taking back $70 million is >> do this. Cuz 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 cuz North Korea North Korea. But, let me let me maybe um give the devil's advocate because I want 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 a bright line case, very obvious. Uh there's no 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, like we don't have confirmation yet that North Korea hacked them. We just have, you know, Lazarus attributed it to North Korea, but they they haven't even confirmed, right? Drift I think

confirmed through uh, you know, these um, firms that yes, it was in fact North Korea. We we're just pretty sure it was North Korea, but we're not totally confident. So, take that counterpoint. Give me give me the response to that, Mane. >> I mean, I I would even I think we should be open to taking it in the other direction. Like, did this just de-risk the hyperliquid escrow uh, for like all of their USDC? Like, maybe it's 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 um, the three of four hyperliquid bridge, but maybe it's maybe it's a bit safer now than it was. I don't know. I 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 built your roll-up around still needing a security council and and or like trapdoors and upgradeable proxy on the withdrawal unlike a lot of the 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 why do companies want to build their own L2? It's cuz 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 that 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 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 resistance, you got to pay up fee in fees.

>> [laughter] >> All Like I think that's fundamentally that's kind of it. I I I think that there is a the the L2 dream of it kind of inheriting all these properties of L1 has always been kind of a nonsense claim because fine, I have a L1 withdrawal hatch, right? Like I can go take my money and 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 MEV's 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 that can occur. >> multi-sig wakes up and, you know, signs you out of existence before you >> Yeah, exactly. Exactly. So it's like I think it's just where the L2 users are too poor to care about this. Fundamentally, right? Like that [laughter] in some ways. In some ways. So I No, no, I mean I I think that is right this dream of accessibility and being cheap. >> So the L2s are for the poors. That's 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 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 um I think it it's funny how um I think like like 10 years ago it was very taboo for there to be, you know, multi-sigs and security councils and there was always an expectation or there's sort of a maybe internal force pushing people to eventually move towards on-chain governance and 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 to launch and like all the government

systems have this kind of component in it and like, you know, people have talked about uh 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 to do stuff like this. So, I don't know. It's it's um it's like if this was not the outcome that you wanted then then you know, there are other ways to to um get about it but if if it's available and you built it then of course you're going to be forced to use it at some point and I think, you know, this this kind of threshold isn't isn't awful but like maybe it's worth kind of

questioning like why why are we sort of stuck in this 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 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, right? 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 who prefer other laws go live in Nevada, people who live other other ones go live in New York. And in the same way, the L2s are at their best and at their 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 go 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 and we're going to take their money away if we figure out that North Korea was messing around with this chain, I actually want to be on that chain. I like that chain. That's a good 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 about the internet.

>> about how crypto >> Yeah. >> To my point last week about how crypto is just like becoming 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 has happened here. And so, it's like I It's like unfortunate, right? Like in in some ways and that like the real dream >> are reflected in that, right? Like if if Arbitrum says, "Guess what? We are now going to respond to all court orders and we will freeze any addresses that court orders demand from us." That is a value wrapped in a terms of like that's a a value wrapped in a contract right? >> Sure, sure, sure.

>> If Arbitrum says, "We're not doing that." Like Tempo will do that, right? You run Tempo, if a court demands that Tempo goes and freezes your stablecoin address, they're doing it instantly, right? They're not They're not They're not going to die on their crosses or go pseudonymous in order to protect you. But Arbitrum Security Council, I mean, these are a bunch of, you know, 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 real- 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 not in 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, so I actually think that this is 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 you know, USDT. 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 I think that's not the right way

to think about layer twos. >> Yeah, I I think I don't disagree. I think the problem is like there is no frontier, right? There like there is no state where truly this this idealistic version of what they were supposed to be. >> What's Ethereum? >> Yeah, it's Ethereum. There's no L2s like that. But I think there was an idea that well, we can do this, you know, in in perpetuity and kind of keep extending >> No, no, I mean, to his point, there's like the ZK L2s or the the base rollups and there's like all the stuff that genuinely does not have security councils or governance in which case how would you even do this? >> Yeah, I guess that's where I mean maybe those have, you know, kind of died. I guess they I mean 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 for those are like, but ultimately they are still like multi-sig controlled. >> Right. Sure. Maybe 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. Right? If you 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 DeFi, I want good fees, I want a good UX, I want the products I I want to do. And it's like, look, if Hyperliquid is using Arbitrum, I'll use Arbitrum. I'm fine with that.

So, on on some level like the market is also speaking here. Is that if people if people I I I would suspect to, you know, Maney's point, is that Hyperliquid saw this and they're like, great, we're staying on Arbitrum. 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 if that may be a competitive advantage for Arbitrum for all we know is that they start winning market share because people are like, "Oh, Arbitrum has this credible commitment to making judicious decisions about freezing uh consequence of of big hacks."

>> Yeah, look look look. I By the way, I'm not I I For the record, I'm not 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 rollups are supposed to be this the the spawn of the L1 and like a perfectly replicated state. >> to Vitalik like 6 years ago. >> Or recently. No, no, no. It's like there 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 think I think there is There's a lot of There are a lot of people who are still very of this belief that the goal of a rollup long-term is to be a replica. And I think basically I I posit there's like effectively an

impossibility theorem result type thing of like you want the lower fees uh at some amount of time, you're just like reducing some other property. Like sense It's 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 >> I mean there's rollups, base rollups. Okay, okay, last thing before we wrap before we wrap. Uh let's talk about remediation. Okay, every time something like this happens, we get punched in the face as an industry, the question is always do we How do we get better? How do we prevent this from happening next time? Moner, let's start with you as a governance guru, what do you think we should do to prevent this situation from happening again?

>> Um 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 in 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, uh, the protocol I work for, we already have had basically rate limits on deposits and and borrows. Uh, 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 uh, it's market-wide. You know, I guess theoretically you could do uh, as address, but like we don't we don't tend to like value that a lot cuz 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 uh, 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. Uh, 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 tail 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.

Um, 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 so as like a stable coin or a lending protocol like, we we look at a something we call like surface of death, which is like the number of individual dependencies that are big enough of exposures to like cause a catastrophic loss where the whole protocol just goes upside down and 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 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, is isn't that also Yeah, isn't that also true on the other side? Listen, let's say, you know, next week North Korea goes and hacks another liquid staking token and does the exact same thing. They but but now everybody has rate limits on borrowing. But, you know, there's fragmented pools across, you know, the layer twos and the layer ones and there's a you know, thing over there and there's thing over there and there's Spark and there's Aave 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 sachet through a pretty big hack over the course of just like the first day's borrow cap. How how do you think about something like that? Because it's 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 DeFi. Like it's everyone's been very siloed 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 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 Aave 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. Um so, I think that's that's a very fair point that you have to you You 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 their integrations, then in some cases like maybe your only your only way to win the game is not play.

>> Mhm. All right, Tarun. I'll give you the last word given your Mr. Gauntlet remediation. What do you think we ought to do differently beyond what Monay said? >> I mean I think Monay 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 2019 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 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 this sudden tendency to like be like, "Oh, okay, it's pegged. Every everything's great.

One to one. Let's go. Take 500 times leverage." Right? Like for No, I think that's not just true in crypto, right? I think that's true in 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 Monay's point about shrinking that surface, it's like the more you shrink, the more you can trust the peg. Right? And so, this trade-off 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 are junior to the mainnet assets, but the OFT token

is treating them one-to-one on the mint and 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 we as a community, we all kind of know a little like one facet here and there of that, but it's like there's a huge diamond and we only know like six of the facets, but the other then that thing that blows up is like this other facet that we just didn't 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. And that that's this collateral selection thing that's I think is never going to go away. This is true in TradFi, it's just that in TradFi, you don't have that many pegged assets. There's a small number. So, in crypto, in in inevitably in the 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? So. >> The beauty of beauty of crypto. All right. Monet, where can people find you? >> At Twitter. Twitter X. >> Beautiful. >> Best place. >> 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. >> [music] [music]