This episode features Danny, host of the Lightspeed Podcast, and Ian from Kairos Research, a firm that operates validators and conducts blockchain research across multiple networks.

The conversation centers on the recent Kelp DAO RS ETH hack executed by North Korea, which exploited a one-of-one DVN setup on LayerZero and resulted in over $200 million stolen. This incident triggered massive outflows from DeFi protocols, particularly Aave, and raised questions about risk management and L2 security responses.

They also explore Double Zero Edge's new shred markets for Solana validators, stablecoin yield strategies including USDE's backing mechanisms, and the broader implications of single sequencer risks demonstrated by Scroll's alleged price manipulation during Etherfi's migration.

North Korea's $200M Kelp DAO Hack Triggers DeFi Exodus

The hack exploited a one-of-one DVN (Decentralized Verifier Network) setup on LayerZero, allowing attackers to mint RS ETH tokens infinitely and drain backing assets

"It was very strange when you see a bunch of money leave the layer zero contract for RS ETH, and we were just trying to figure out exactly who, like, what happened here" - Ian

Within two hours of the hack, Aave experienced $1.9 billion in outflows, representing the worst three-day period since the FTX collapse in 2021

The hack demonstrated how much "stale capital" exists in Ethereum LRTs, with even protocols like Etherfi continuing to grow despite building different product suites

L2 Security Responses and Single Sequencer Risks

Arbitrum Security Council froze 30,000 ETH associated with the hack, sparking debate about whether L2s should intervene in such situations

"Should Arbitrum do this? Probably. It's hard to paint a picture. It's like, why not? Without being a bit of a silly, like kind of crypto anarchist" - Ian

Scroll allegedly increased gas prices 64x when Etherfi migrated to Optimism, demonstrating malicious single sequencer behavior that "has to be illegal"

Scroll's market cap dropped from a $1.8 billion private valuation to around $8 million today, representing "one of the worst venture outcomes in crypto by far"

Double Zero Edge Monetizes Validator Shreds for Trading

Double Zero Edge creates the first way for Solana validators to monetize their shreds, previously dominated by Jito's Shredstream as a loss leader

The product could scale to $62 million in revenue if all seats are utilized at current fixed rates, targeting HFT firms and market makers needing low-latency data

"Shreds" are the smallest portion of a block produced in real time, providing speed advantages for traders connecting to Amsterdam and Frankfurt hubs where most Solana stake sits

Double Zero distributes 50% of revenue to network contributors and the remainder to validators and client teams, creating aligned incentives across the ecosystem

Stablecoin Yield Strategies and Market Dynamics

Stablecoin issuers receive roughly 7x more daily revenue than the aggregate fees across 13 major blockchain networks, highlighting the value of yield-bearing assets

USDE backing includes $1 billion in Biddle (tokenized T-bills), enabling competition with risk-free rates rather than below-market DeFi lending rates

Athena processed almost $1 billion in USDE redemptions over four days following the hack while remaining over 100% collateralized throughout the stress test

Jupiter's JUPE USD scaled to over 100 million before recent withdrawals, while Mega ETH plans to use all stablecoin yield for token buybacks

Protocol Value Capture and Buyback Mechanisms

"99% of protocols do not trade at fair valuations" with lack of structural bid for altcoins, making buybacks the default revenue allocation strategy

Both Hyperliquid and Double Zero immediately convert revenue to token buybacks, creating direct market incentives for protocol improvement and growth

The capitalistic approach allows interested parties to buy tokens, improve protocols, and benefit directly from increased traction through mechanistic buybacks

Solana could potentially negotiate revenue share deals with Circle similar to white label stablecoin arrangements seen with Jupiter, SUI, and Mega ETH

Resources Mentioned

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peed Podcast, and Ian from Kairos Research, a firm that operates validators and conducts blockchain research across multiple networks. The conversation centers on the recent Kelp DAO RS ETH hack execu

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tively newer Telegram channel where you guys put out, you know, updates on posts or, you know, like research pieces that you guys are writing up. I found it really interesting and useful personally.

recently put out a couple of proposals around USDE

bout some of the looping of these assets on stable coins and like USDE, for example. I know Kairos research recently put out a couple of proposals around USDE, specifically around the backing of that

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ou on more Lightspeed apps in the future. Um, maybe we'll get you on a roundup with a couple of the research boys and we can have more of a roundtable conversation. But always a pleasure to have you o