Risk Management Update: rsETH Exploit Incident Response
Background
On April 18, 2026, a security incident affecting rsETH was identified. The incident involved the unauthorized release of approximately 116,500 rsETH from KelpDAO’s bridging adapter following a forged cross-chain message. LayerZero published their incident statement on April 19, attributing the attack to the Lazarus Group and stating that no other cross-chain asset or application was affected. KelpDAO published additional context on April 20, disputing part of LayerZero’s characterization of the DVN configuration involved. Given rsETH’s presence as collateral across several lending and liquidity venues integrated with Lazy Summer fleets, BA Labs began assessing contagion risk across all active arks and initiated protective measures.
Direct rsETH exposure within Lazy Summer at the time of discovery was approximately 4.22% on Base and 1.7% on Mainnet. In addition, rsETH was identified as collateral in several Morpho vaults integrated with active arks, creating indirect exposure. BA Labs paused keepers immediately to prevent any additional allocation to affected arks during the assessment and transaction preparation period.
Risk Rationale
L2 deployments were treated as the higher priority for intervention for two reasons. First, Aave’s Umbrella safety module is not deployed on L2s. Second, rsETH holders on L2s face elevated resolution uncertainty, given that final loss allocation between Mainnet and external chains remains unresolved as of this writing.
Fluid markets warranted attention independently, as BA Labs has observed recurring instances where keepers are unable to withdraw from Fluid positions despite caps being set to zero, making early intervention critical regardless of cap status.
Actions Taken
April 18 to 19, 2026 (Batches 1 and 2)
Aave V3
Aave froze rsETH and wrsETH markets across all deployments where the asset is listed. As market stress developed, additional containment actions were taken on selected WETH markets. Caps were set to zero for:
- Mainnet LR: WETH, USDC, USDT
- Mainnet HR: WETH
- Base LR: USDC, EURC, WETH
- Arbitrum LR: USDC, USDT
- Sonic LR: USDC.e
Spark
rsETH-related exposure was treated as requiring precautionary action. Caps were set to zero for:
- Mainnet LR: USDC, USDT
Compound V3
Caps were set to zero for:
- Mainnet LR: WETH
- Mainnet HR: WETH
Fluid
rsETH was present as collateral across multiple Fluid markets. Combined with the recurring keeper withdrawal issue, BA Labs treated all active Fluid ETH markets as requiring immediate action. Caps were set to zero for:
- Mainnet LR: WETH, USDC, USDT
- Mainnet HR: WETH, USDC
- FluidLite Mainnet HR: WETH
- Base LR: WETH, USDC, EURC
- Arbitrum LR: USDT
Morpho KPK markets
These Morpho vaults use syrupUSDC as underlying collateral, linking them to Maple Finance. While Maple has no known direct rsETH exposure, caps were set to zero as a precautionary measure given broader market stress. Caps were set to zero for:
- Mainnet LR: morpho_kpk_usdc_prime, morphoV2_kpk_usdc_prime, morphoV2_kpk_weth_prime
- Mainnet HR: morpho_kpk_weth_prime
Morpho yearn og, InfiniFi, and morpho_extrafi markets
These vaults had direct or indirect rsETH exposure across the HR and LR fleets. Caps were set to zero for:
- morpho_y_og_weth (Mainnet HR)
- morphoV2_yearn_og_usdc (Mainnet HR)
- morpho_steakhouse_infinifi_usdc (Mainnet HR)
- infiniFi siUSD (Mainnet HR)
- morpho_extrafi_xlend_weth (Base LR)
April 20, 2026 (Batch 3: Origin OETH, Mainnet HR)
The allocation cap for Origin OETH was set to zero. In an active LST contagion environment where cross-chain loss allocation remains unresolved, products with third-party LST exposure may introduce tail risk that BA Labs does not consider appropriate for continued allocation under current conditions. This is a precautionary measure consistent with BA Labs’ incident response standards and will be reassessed once the rsETH situation is fully resolved.
Present Exposure
As of April 22, 2026, the only remaining rsETH-related exposure within Lazy Summer is isolated to the FluidLite WETH ark (Mainnet HR), where liquidity is actively unwinding. Following the actions described above, exposure within the HR ETH Mainnet fleet was reduced to approximately 0.05%, and has since decreased further to approximately 0.02% as the unwinding process progresses. At the protocol level, current exposure stands at approximately 0.007%. BA Labs expects this to decrease further as keepers are able to withdraw additional liquidity as it becomes available from the protocol.
Ongoing Monitoring
BA Labs is continuously monitoring all remaining active arks for contagion risk as the rsETH situation develops. Further cap adjustments will be made without delay if conditions warrant, and this post will be updated accordingly.
