Lol this wont work. Why would people return money to a protocol when they havent repaid what they lost. Or why would they even bother ie: if their account health is low.
I support the teamās proposal because the snapshot is fair to all at the moment of the hack. Your problem is a single position: deposited ETH while borrowing stablecoin. On the opposite side of your argument are people who deposited stablecoin and borrowed ETH at the same time. There is no perfect outcome that will benefit both sides of an opposition.
Letās make the following assumptions:
A deposited ETH and borrowed Stablecoin, then bought ETH with Stablecoin.
B deposits stablecoin to borrow ETH, and then immediately sells the ETH.
In this case, the teamās proposal perfectly satisfies both A and B. The people currently complaining about unfairness in discord are assuming that their borrowed stablecoins are staying the same, because that is the most beneficial situation for them. But in reality we have no way of knowing what users actually do after borrowing stablecoins.
In summary, it is correct and fair to calculate the ETH value of an account using a snapshot of the moment of the hack.
Would be nice to give back same for depositor and those who also borrows. We have 5 parties.
- protocol operator
- depositors only
- borrowers who borrow stables against crypto
- borrowers who borrow crypto against stables
- borrows who make leverage liquid staking or or borrowing or farming EUL token using Fold and self collateral
Group 5 and 2 - make sense go back on prices of 13.3. But is mostly just one asset.
Group 4 - (minority) is mostly underwater. Market changes situation of the wallets. You want to donate this group, be restoring their position?
Group 3 - according now day prices their position is better. If you want take their welf, because lack of resources, all the parties should be cut by 5% or 10% or how much you have. By going to the prices of 13.3. this group pays lack or resources.
Group 1 - First congratulations of restoration of the stolen funds. Protocol operator of a lending protocol needs borrowers. Itās a shame go back on 13.3. prices and put most of the costs on them. Anyway, you may plan restore protocol. Kind of Euler 2. So you can make a deal who restore the position on Euler 2 for 3 months is not cut by 10%, but only by 5%. And the collateral is cut, loans stays same. How easy. And change of prices is not needed to consider. Until the liquidation takes play.
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Iāll be serious here for this one and Iād like to propose an amendment to the first point in the original proposal, in that the on-chain oracle price is not the block in which the protocol is disabled, but instead a TWAP between two blocks; 1) when the protocol was disabled and 2) when this proposal passes, or is ratified.
TWAP stands for ātime-weighted average priceā. Itās a pricing algorithm used to calculate the average price of an asset over a set period. This is calculated by summing prices at multiple points across a set period and then dividing this total by the total number of price points.
TWAP vs. VWAP Price Algorithms | Chainlink
There are a number of reasons Iād put forward for this:
1. It averages out market movements between positions.
Many of the concerns raised has been around ālongs taking a haircut and paying shortsā. Whether this is the right framing or not will be left out of this one, but it should be a goal to minimise the extremeties of loss for one group and not allow a separate group to benefit. A TWAP achieves this by averaging the debt pricing between the point in which the protocol lost control over user funds and when it regained it. There is no clear reason (yet) given why this should be chosen at a single price point that sees one group profit more than another when compared to the current market prices.
2. Our agency is the same any block after the hack.
The block in which the protocol was suspended appears to be a nice schelling point in which behaviour was changed for the individual but it could be argued that choosing the moment of protocol suspension is as arbitrary as any point after it. We could not manage our positions in the block of the suspension as much as we cannot manage them now - our agency is identical. And to that extent the protocol already selects an average price, albeit for one block.
3. The protocol cannot be seen to be picking winners or losers.
Choosing any single block can be seen as a decision to favour one set of users over another depending on who benefits the most from that block. By avoiding selection of a single block and using average debt pricing over a justifiable time period removes the perception of any bias.
4. It is a minor amendment to the current proposal.
The current proposal appears to have been through numerous rounds of amends and approvals, to the extent this is seen as the most effective and feasible proposal for the team to move forward, and this proposal inherits that work. This is proposed only as a minor amendment to the debt pricing and not a wholesale replacement of the proposal. Other mechanisms and distribution mechanisms are unchanged.
Note:
It has loosely been mentioned that the debt must be priced in the past, and since Iām not a lawyer in any shape or form Iāll take this on face value so feel free to replace the 2nd block used with any valid checkpoint that also works. This could be the block in which the first announcement tweet went out, or when the investigation was suspended, or the hackerās last transaction. It doesnāt matter too much to the meat of the proposal.
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To my understanding these people already exist and I dont believe the repayment of some would impact those participants.
They already dont have the incentive to participate in the recovery process at all if they have positive value gained and are now underwater on their positions.
First of all: Great job getting the funds back and being fast with this proposal and getting this sorted.
To your proposal:
Why not give the $ value amount at day of payout to the users in ETH / stables.
If there are accounts with a negative balance, they get 0.
I think the Euler treasury should be used to make everybody whole. I also think this is your moral and legal obligation. If this is not enough, please provide us with a debt token. The debt token should have the $ value at time of payout, which was not covered. You can later redeem against the tokens from your future profits.
I think you get the user buy in to keep enough funds for a protocol restart in your treasury.
This is how a regular bankruptcy case would handle it imo and the right way forward.
If the price of ETH (and other crypto) went down from the exploit to the recovery and Eulerās plan was to use exploit time values for NAV/redemption, Iād imagine many of the folks complaining that the distribution isnāt fair wouldnāt be arguing to change it to use the current values for NAV/redemption. Thats telling - its not that the distribution method isnāt fair, its that its not fair to you.
In my opinion, the only rational thing to do when Euler was exploited was to assume that whatever trade you had on was no longer on (and likely 100% of your assets were gone). If you had a leverage position on and you wanted to continue to have leverage exposure, you should have put it on elsewhere. If your Euler position was hedging something, long or short, you should have put a replacement trade on elsewhere. If you put a replacement leverage position on elsewhere, should you get extra benefit now (get double leverage gains)? If you replaced a short crypto position elsewhere, should you get penalized by replacing your Euler exposure?
Bankruptcy cases for crypto assets generally convert your account into a USD amount as of the date of filing. See Celsius, BlockFi, and others for crypto examples. Eulerās method is in the same vein and fundamentally makes sense and is sound. Whatever method is chosen for the distribution, someone will be harmed or feel injured. I suggest that everyone takes a hard look to think if the proposed distribution is really not fair, or just not fair to my position and my particular circumstances.
None of my own funds were in Euler at the time of the exploit, this is my attempt to be impartial and think logically what a rational actor would do post the Euler exploit.
I think the main complaint is that users may be losing capital while it is unclear whether Euler themselves will need to spend their treasury under this plan.
Hypothetically, if this were to be a ~10m hack, leaving the majority of the users underwater, it would most definitely be expected that the project team would spend what is only 1/3 of their treasury to recapitalize the protocol.
So if we are left with a hole of bad debt, lets say roughly 10m, it seems strange to socialize these losses when there is ample opportunity to prevent them.
If we are comparing the events to bankruptcy:
Like youve mentioned, in bankruptcy those lending would get capital first, not equity holders.
That being the case, the entirety of the treasury would need to be included in the claims in order to compare this WHATSOEVER to bankruptcy.
Being clear. The organization is not bankrupt. There is plenty of capital to ensure that NO lenders are left with losses, the same way a bankruptcy would be treated if there is excess capital leftover for equity holders.
Moreover, to compare things to bankruptcy, you would need to include the available liquidity for the EUL token given the equity itself can be liquidated.
That said, there is ~$50+m in additional capital to make all users whole and pretending that it isnt there would be silly, especially if claiming this is comparable to a bankruptcy.
On a separate note, I would clarify further that a repayment window to allow some users to fully exit their positions should not impact the overall collateralization of the protocol as the same overall amount of ābad debtā would theoretically remain (to my understanding).
That said I still see two rational solutions:
- A repayment window allowing for this accommodation
- An expedited repayment without this accommodation, with the Euler project team taking on the onus of making users whole
Outside those solutions I struggle to see a responsible way forward, and still am requesting feedback or any response outside of āyoure being greedyā and āwe want money ASAPā.
edit / TL;DR:
I think if the team wants to retain their social capital (reputation and users), they should be prepared to extend monetary capital to āmake things rightā.
That would include either directly purchasing assets with their treasury ASAP to cover divergence loss for users (the appreciation of ETH primarily) or would include a recovery window which would feel fair to many but depending on further divergence could be even worse.
All this said, Iām not trying to be too critical of the team, im sure they know these things and weāre being heard. Its just important to express discontent when a significant portion of Eulerās largest userbase (e.g. ETH lenders / stable borrowers) is losing so much value.
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What is the governance process for deciding on a redemption plan? Will depositors get a vote based on their net TVL in the protocol? Which entity(s) currently control the Euler Multisig which holds the recovered assets?
The more I think about it, the more annoyed I get that Euler Labs is really botching this reimbursement plan. They have far more than enough funds between recovered assets, sherlock insurance payment, reserves and Treasury to resolve this in a way that gets all depositors back their original collateral assets (after debt either paid back or debited from the collateral deposited) and still plenty of funding left in the Treasury to relaunch the protocol if that their intention. This should not need to be a acrimonious negotiation or legal battle between depositors and the team. It was Euler Labs that screwed up by introducing the bug (and the auditorās fault as well, but they already paid for it) and it is well within their power to make this right and still resume the protocol. AsJulian said above, they should value their social and reputational capital over maximizing their monetary capital. It not just the ethical thing to do, it is the better business decision if they want to continue operating in the Web3 space
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My āgold standardā solution here would be to:
-
Allow any user to pay back their borrows and retrieve their collateral. Weāre users of a lending protocol after all and if it was able to be restarted Iād expect this to be the case, and since we canāt restart for technical reasons I donāt expect the calculation to change drastically from that. Because why should it? If the protocol could have been restarted it would make zero sense to restart it with market prices from four weeks ago - that argument should still apply here even with a different mechanism.
-
Any users that were unable to manage their position after the point of the hack and needed to (e.g. shorts) can claim back losses from the treasury, token, reserves, or future revenue. It wasnāt their fault they couldnāt manage their position and lost autonomy of their actions. That blame is to be shared between the protocol and the hacker.
But as time goes on Iām becoming more doubtful of that.
Iāll stick to my main point though; if the protocol could have been restarted like we hoped for, would you expect it to pay down your debt from a point in the past? and if not why is that the best approach now?
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They should just treat this like a bankruptcy and just use their Treasury to resolve all these issues to make all users whole. The current plan to favor minority net stablecoin longs with a profit (which includes shorts) while punishing majority net crypto longs with a loss is unfair and unethical. Use the redemption date price for the liquidation price and then use the Euler Treasury to compensate the stablecoin longs so they get back the same amount as their net stablecoin deposits. And if that will result in losses for either group due to a lack of Treasury funds to fill the deficit (I do not think it will), then make sure the loss is shared equally in percentage terms between both groups.
I would support any plan, as long as the calculations are the same for everybody. I did not expect to get anything back, so I applaud team for somehow forcing hacker to return funds, and urge everybody to support any plan for funds redemption that team propose, even if it is not the most profitable for you personally. Crypto continue to rise, the gap between rates when the hack occurred and actual rates increase, in my opinion we just need to get the funds back ASAP.
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absolutely agree, team need to return the money ASAP.