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An Open Letter to Iron Bank

Alpha Homora is writing to express concern about actions taken by Iron Bank that harms depositors and to urge Iron Bank to take immediate action to reverse your actions. Around 8:20PM UTC+7, a code change was made in the code of Iron Bank, a protocol spin off from the team behind C.R.E.A.M. This change appears to have been unilateral without notice and now prevents lenders to withdraw their liquidity. Alpha Homora is deeply concerned that this may be Iron Bank's misappropriation of users’ funds.

Here is what happened:

Since 2021, there exists bad debt between Alpha Homora and Iron Bank from a code exploit. The two protocols work through protocol-to-protocol lending mechanism, and thus it was appropriate for the issue to be resolved between the two protocols. At the time, both protocols agreed to

  • 1) have the bad debt be paid down by using 20% of Alpha Homora’s protocol fees to pay off the debt (or exploited funds)
  • 2) have 50M ALPHA to be locked as collateral

These shared understandings are also public on the smart contract here.

With regards to bad debt, Alpha Homora has been using 20% of the protocol fees to pay off the debt continuously on a monthly basis since the beginning as agreed. Transactions of those transfers can be found here.

With regards to collateral, the collateral has depreciated in value in accordance with the overall crypto market. As a result, the debt has been undercollateralized. Iron Bank raised concerns two times with regards to the collateral. However, this was many months after the collateral had dropped below 1.66x and was in fact below 1.0x of the bad debt when Iron Bank reached out. According to the agreement, Iron Bank was responsible to liquidate the collateral should it drop below 1.66x and was not topped up. Both protocols have come to a mutual agreement on solving the problem with the agreed solutions. The first solution that was implemented was to add more collateral. The second solution that was also implemented was to rebalance the debt.

On February 14, 2023, Iron Bank raised a concern the third time with regards to under collateralization even though it is a result of them not liquidating the collateral when it was 1.66x. Both protocols agreed to find a solution. On March 1st, 2023, Alpha Homora messaged Iron Bank at 5PM UTC+7 to set a time to discuss.

However, they ignored the message and instead of working to solve the problem, Iron Bank went ahead at 8:20PM UTC+7 on March 1st to make a code change that appears to have been unilateral without notice and now prevents lenders from withdrawing their liquidity without Alpha Homora's knowledge. Specifically, they changed the config in the smart contract so that lenders cannot withdraw their liquidity.

Given the full context above, we’d like to point out and clarify Iron Bank’s message to their Discord community.

~$5k/month repayment

  • As shared above, both protocols have agreed to have 20% of Alpha Homora’s protocol fees be used to pay off the debt on a monthly basis, and this is what we have done since the beginning in 2021. The bear market does not only impact crypto valuation, but also impacts on-chain and DeFi usage. As a result, the protocol fees collected were lower in value since the bear market. 20% of the protocol fees/month yield higher dollar value during the period of high protocol usage.

Topping off collateral

  • As shared above, Iron Bank raised concerns two times with regards to the collateral. However, this was many months after the collateral had dropped below 1.66x and was in fact below 1.0x of the bad debt when Iron Bank reached out. According to the agreement, Iron Bank was responsible to liquidate the collateral should it drop below 1.66x and was not topped up. Yet, both protocols have come to a mutual agreement on solving the problem with the agreed solutions.

The path forward:

Whatever concerns Iron Bank has does not entitle it to take user deposits. Because these actions raise trust issues with Iron Bank, Alpha Homora will disable new lending and new positions on Alpha Homora v2 to prevent any new user from engaging directly with Iron Bank. Open leverage positions can still be closed.

We will continue to push forward such that Iron Bank takes corrective action to return the lenders’ funds and discusses with us on the solution we came up with that is legally and morally right, that is fair to lenders.

On the product development front, building continues as we have been heads down building Alpha Homora v3 and Alpha Chambers that together will create a more effective and secure money market ecosystem driven purely from a profit-sharing mechanism instead of interest rate model. For more details, please see here.

Closing thought and note to other builders:

This is a reminder to all other protocols that integrate with Iron Bank to be very mindful and careful, as their action has shown that they are willing to unethically misappropriate users' funds. We, as builders and providers of products and services to this open space, should not work or support this kind of wrongdoing, mentality, action, and people making these decisions that harm users.