Tenth Open Letter: Goodwill Fund
After two and a half months of depositors (those who interacted with Alpha Homora (AH) frontend to deposit funds into Iron Bank (IB) on Ethereum) and AH, on behalf of depositors, negotiating with IB to unfreeze depositors’ funds, depositors voted to stop negotiating with IB, receive a goodwill fund set up by AH, and take appropriate legal action against IB. Negotiation has ended, and depositors’ funds are in IB unless IB unfreezes.
As a recap, since 2021, there exists bad debt between AH and IB. The bad debt occurred because of the code exploit attack and not because of the protocol design though we take security as the top priority and conducted 3 external audits by top-tier security audit firms.
AH and IB 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 use 20% of AH’s protocol fees to pay back the bad debt and provide 2x collateral with ALPHA tokens. Per the agreement, this collateral can be sold to settle the bad debt in the event that the collateral value drops below 1.66x and no new collateral is provided. However IB failed to liquidate the collateral leading to the current hole in the protocol. The agreement can be found here.
This had been the default way until IB suddenly froze depositors’ funds without our knowledge and demanded for accelerated payments from AH despite having the original agreement in place. Depositors and AH, on behalf of depositors, negotiated with IB and exhausted different solutions over 2.5 months. Depositors now voted to stop negotiating.
We have set up a goodwill fund for depositors whose funds are stuck in IB. Our resources are limited, and though this fund is not huge, we hope this can be helpful more or less to depositors.
The goodwill fund consists of 2 parts.
1) 30M ALPHA is set aside to give to depositors over 18 months, vest on the 17th of every month, starting May 17th.
2) 50% of protocol fees going forward will be distributed to depositors for 18 months. We will revisit again after 18 months for terms afterwards. This is an increase from the original number of 20% that had been allocated to IB.
Vesting is designed to align long-term incentive of existing stakeholders and long-term success of Alpha, ultimately leading to the best recovery for all parties. Both funds will be distributed according to the percentage each depositor has in the total funds that IB froze (deposit dollar value and accrued interest) at the snapshot time of May 11, 2023 2PM UTC. For example, if depositor A’s fund is 10% of the total amount that IB froze at this snapshot time, then depositor A will get 10% of the 30M ALPHA over 18 months and 10% of the 50% of protocol fees for 18 months. Note that all token prices are taken at this snapshot time of May 11, 2023 2PM UTC.
Though this incident has set us back, we will not stop building and will continue to contribute more value to the Alpha ecosystem, including the depositors who receive goodwill funds in ALPHA tokens. Our new product is differentiated from all the other products in the market, and we believe the new product is key to capture a huge market gap in the current and future DeFi landscape that has changed drastically over the past few years. The new product will accrue protocol fees, and 50% of those will be distributed to depositors.
Next Steps on Claiming Goodwill Fund
As a next step, Friday May 12, 2023, we will share data as to how many ALPHA tokens each address is eligible for. Depositors should check and reach out on Discord by Sunday May 14th 11:59PM UTC if there is anything to be corrected or if the goodwill fund allocation should be redirected to any other addresses (in case of a protocol lending on AH). Afterwards, we will share details and next steps on claiming the fund.