What is Lido's fix for rsETH aiming at for LDO and EarnETH?

Lido DAO is proposing a way to handle the remaining losses related to Lido Earn ETH [EarnETH], after DeFi United tried to restore the rsETH collateralization level.

This development centers on roughly 9% exposure of the EarnETH vault—equivalent to about $21.6 million—while the remaining loss is estimated at 400–600 ETH. The problem is that this loss is below the 1% trigger threshold tied to the first loss buffer worth $3 million, so there is still a gap in the current protection mechanism.

Source: Lido Finance on X

A protection gap appears when remaining losses fall below the compensation threshold

Lido says the remaining losses do not reach the threshold required to activate the 1% mechanism of the first loss buffer valued at $3 million. As a result, even though most of the damage is handled externally, a small portion still lacks an automatic compensation method within the current framework.

Lido’s proposal aims for a one-time adjustment

To address this gap, Lido proposes a one-time threshold adjustment to cover the remaining amounts. This approach is intended to preserve user confidence and prevent small losses from continuing after the main incident has been resolved.

The impact is about user protection level and risk allocation

If the proposal is accepted, the pressure on EarnETH users could be reduced, and the protocol’s risk scope would also be kept within limits. However, the data currently available does not show whether this would be a mechanism applied to similar situations in the future.

The missing data needed for a more definitive conclusion

The data currently available does not provide details on how the threshold adjustment would be implemented, the timing of its application, or the specific legal and governance scope of this decision. There is also no additional information on how the 400–600 ETH loss would be handled if the proposal is not approved.

Summary

The situation is not about a newly occurring large loss, but about the small remaining losses after the main issue has been dealt with. Lido is looking to patch the gap between the existing protection mechanism and the actual loss level of EarnETH, while still maintaining boundaries so it does not become a broader reimbursement precedent.

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