Key Points from AMA with Alpha Homora with Regards to Fourth Open Letter
Important Background Information
Timeline Prior to Today:
It is important to note that Alpha has been following the debt repayment agreement since the start and ascertained that users would not be affected by the incident as it is a responsibility and liability between Alpha and Iron Bank (IB). Since the day the IB team froze Alpha Homora’s user funds on March 1, 2023, Alpha has made many attempts to negotiate with IB, including proposing to use a significant amount of our token treasury to pay down the bad debt, but none of the proposals was accepted by the IB Team.
As of now, the IB team is freezing ~$40M of Alpha Homora’s user funds on the ETH chain, of which ~$32M is the bad debt between IB and Alpha and ~$8M is the excess. To resolve this issue and get buy-in from the IB team, Alpha lenders need to make a decision together as one united voice and as a community.
Timeline During Open Letters:
With regards to why we have not proceeded with repaying all debt at once after the incident or find way to talk to Iron Bank on this:
Before reaching this stage, we have already proposed a way to repay the $32M using our treasury in a sensible timeframe to Iron Bank but they rejected. Their unwillingness to communicate or negotiate as well as their actions have shown that they can change their mind at any moment and are difficult to trust. Thus, we believe the best course of action we can take is to have discussions with the community through Fourth Open Letter.
Timeline Leading to Today (Fourth Open Letter):
We need to first understand that currently IB is still holding ~$40m of users’ funds as hostage. This amount can be divided into 2 parts:
- The total excess ~$8m
- The bad debt ~$32m
The first step we all need to focus on is how to deal with the (1). There are 2 possible end goals to this: (i) negotiate with IB, or (ii) don’t negotiate with IB.
For (i), Iron Bank’s past actions and the way that they have shown no interest in direct communication or negotiation made it difficult to take any specific actions as there are no guarantees that any actions will safeguard the users’ funds. Whatever solution we negotiate with IB on behalf of users with regards to step (1) will only be a solution our depositors agree upon.
After step (1) is clear, we can then proceed together on how to resolve the $32m bad debt. Either we continue negotiating with Iron Bank, or find a remedy plan together with our depositors - in which we will use treasury for this part, which will be decided and voted on by the community as well.
As a result of this thought process, this led to the action we proposed to Iron Bank in the latest Open Letter #4: negotiate on behalf of users to get the outstanding excess from IB first.
Key Takeaways from AMA
Intention for the proposal in our Fourth Open Letter:
- Share what we can still do on behalf of users in hope for a discussion with the impacted users on how they would like us to proceed given the situation.
Details of actual proposal for voting:
- This will be a revised version that has already incorporated users feedback from the moment we released Fourth Open Letter.
- The release of the proposal and voting start date will be on March 11 8am UTC. Voting will open for 48 hours.
Text Clarification in our Fourth Open Letter:
- With regards to what was mentioned stating “Most importantly, this means the bad debt will be transferred from between the two protocols to one between Alpha Homora and its depositors” in the Fourth Open Letter, what we meant was even though this bad debt is a debt between the two protocols because of the protocol-to-protocol mechanism, the bad debt has involved users the moment Iron Bank misappropriated user funds.
- The debt will not be transferred to users, but be dealt between Alpha and IB.
- If IB refuses to release the funds, then Alpha Homora users vote to determine the next step forward, for example, pursuing legal action against IB, remediation plan to make users whole as much as possible, etc.
Purpose of Fourth Open Letter:
- This proposal is in the hope that there is at least some way that we can negotiate on behalf of users to retrieve the excess funds ($8M) back first.
- This is where we plan to involve the community (as stated) as we want to align the solutions that the community would like us to take the most. Users are free to let us know their thoughts as well as vote on the next course of action they would prefer us to take on behalf of users.
Options We’re Heading Towards on the Fourth Open Letter’s Proposal
With all that being said, this leads us to the current options for the proposal to move forward:
Option 1: We and the community agree to continue to negotiate with IB in hope to return $8M users funds.
- Implication: This is the option that will allow Alpha Homora users to get some deposits back as fast as possible.
Next step if vote is YES:
- Communicate the proposal to IB, in which IB has to agree to before executing.
- Alpha Homora users and Alpha determine the next step forward, for example, pursuing legal action against IB, remediation plan to make users as whole as possible, etc.
Option 2: No, AH should not negotiate this way, but find another way to negotiate
- Implication: Alpha Homora users may not be able to withdraw for a longer period of time, since more time may be required for a reasonable negotiation with IB.
- Next step: Alpha Homora users agree on conditions for a new proposal for IB.
Option 3: No, AH should stop negotiating. Proceed to next steps
- Implication: Alpha Homora users and Alpha stop negotiating with IB.
- Next step: Alpha Homora users and Alpha determine the next step forward, for example, pursuing legal action against IB, remediation plan from our treasury to make users whole as much as possible, etc.
Open Floor Q&A
Q: How is this vote going to be counted and weighted?
A: Value of ibTokens, so only lenders will be able to vote. Only Alpha depositors on the 4 affected tokens (ETH, USDT, USDC, DAI) on Ethereum chain are able to vote. Each depositor’s voting power is dependent on the dollar value of their deposits (represented by ibTokens). The ETH price used for voting power calculation is ~$1529. The prices used are as of Mar 9, 11:08AM UTC.
Full details on Snapshot.
Q: If you choose Option 1, how much is the haircut?
A: We’re unable to tell the amount of the haircut given it will depend upon the remedy plan that the community ultimately selects through voting. Given that users have varying levels of tolerance for a haircut, the chosen solution will be determined by the collective vote of the lenders.
Q: What about giving the protocol over to IB?
A: In this case, you can vote for option 2 and move forward with different ways to negotiate with our bank, including the one mentioned.
Q: Is the following option possible?
To compensate Alpha Homora depositors for their loss of ETH funds, Alpha Homora can work with OlympusDAO to implement a bonding mechanism that bonds ibETHV2 with ALPHA Token. By bonding these two assets, Alpha Homora can offer users ALPHA Token at the current market price in exchange for their stake in ibETHV2.
The bonding mechanism can be implemented over a period of a year to prevent any sudden price impact to ALPHA. Once the bonding is complete, Alpha Homora can use the ibETHV2 to pay off its debt to Iron Bank.
This solution can provide depositors with a fair compensation package equivalent of ALPHA token while also ensuring that Alpha Homora has the necessary funds to continue its development and growth.
A: This option is possible and will be added to one of the solutions in the option for users to vote when we get to the point where everyone agrees that we should move forward with discussing the remedy plan with users.
Q: What exactly gave "custody" to IB to keep any of this in the first place as it seems to be a project vs. project (protocol debt) issue that is being turned onto depositors?
A: Whatever concerns Iron Bank has does not entitle it to take user deposits. Iron Bank make a code change that appears to have been unilateral without notice and now prevents lenders from withdrawing their liquidity.