Euler Finance Hack 2023 Distribution of Funds Proposal “Multi-Stage”
This proposal lets each user choose to either claim their tokens during a early distribution phase (if possible), or wait until the relaunch of the protocol. It furthermore requires the protocol/DAO to cover all missing funds.
Stage 1: Analysis & DAO Vote
Publish list #1 of accounts, showing all deposits and borrows of underlying tokens of a single account, snapshot from time of freeze, include also accounts from staking contract
Publish list #2 of accounts, based on list #1 with the following changes
- wstETH and stETH deposits and borrows get converted to ETH, at the exchange rate at time of freeze (no staking rewards paid out after time of hack) (avoid slippage for the DAO/protocol due to large swaps)
- USCD deposits and borrows get converted to DAI, at an exchange rate of 1.0
- self-collaterized (deposit and borrow in same underlying) positions cancelled out
- account for the “lucky user” by adding 86ETH (amount needs to be validated) of borrows to their account.
Publish list # 3 of tokens showing total supply, borrows, and net difference of each token
Publish list # 4 of tokens with all existing funds marked for euler users, which include funds recovered from hacker, insurance payout, the euler market contract.
Publish list # 5 of tokens required to be covered by the DAO treasury (includes WBTC). This is the difference between list #3 and #4.
Waiting time of 3 days, open for comments to find potential errors in lists, restart waiting time after each change to a list.
DAO vote to finalize lists.
Stage 2: Funds
DAO aquires funds from list #5.
Stage 3: “Early Distribution”
Distribution via merkle tree contract, specified and developed by euler labs team. List #2 will be used as basis.
Accounts with open borrows have the possibility to voluntarily repay their borrows by directly sending to the treasury. Update list #2 accordingly. First window is open for 3 days until snapshot.
The following requirements have to be met for an account to be included in the merkle tree:
- Account has only deposits, and no open borrows. We will refer to those accounts as “Merkle Tree Permitted” (MTP) accounts.
The following requirements have to be met for an token to be included in the merkle tree:
- Calculate the total sum of required funds for each token from only MTP accounts. Include the token for early distribution via merkly tree only, if funds for all MTP accounts can be covered by available funds. This tries to avoid a situation where MTP accounts can e.g. claim a total of 1000 TOKENX, but only 500 TOKENX are available, as not enough borrows have been returned, yet.
Step 3.3 Repeat process every 1-2 weeks until protocol is relaunched. Update list #2 accordingly after users have claimed tokens, or users have send back their borrowed tokens to the treasury.
Note, that the tokens permitted for the merkle tree can therefore change over time, i.e. some tokens are included in a next update after enough borrows are returned, or some tokens need to be removed again if the required amount increases due to new MTP accounts.
Non-EOA accounts (parallel to process above)
Non-EOA accounts which cannot claim from the contract can contact the euler team for a separate proof process, and manual distribution of funds.
(optional, to be determined)
DAO vote before each merkle tree update. DAO vote before each manual distribution of funds to non-EOA accounts.
Stage 4: “Protocol Relaunch Distribution”
Users who cannot or do not want to claim their tokens on the early distribution process, will get eToken/dToken balances set on the protocol relaunch. Users should expect this to take a long time, but will therefore have the possibility to get original tokens back. We are rewarding those users willing to wait by returning their original token balances denominated in wstETH, stETH, USDC.
It is expected that slippage is now much smaller, as most users have already claimed in ETH/DAI - the DAO covers slippage, and staking rewards since time of hack - users who wait will get their actual original amounts including staking rewards. The risk for protocol is much smaller now, since only the remaing accounts need to be manally set in the contracts now.
Step 4.1 Development and audit, including process for eToken/dToken balances.
Step 4.2 Snapshot / Stop of early distribution.
Step 4.3 DAO aquires funds for wstETH, stETH, USDC.
Step 4.4 Relaunch protocol. Set eToken/dToken balances of accounts who have not claimed during early distribution.