AAVE V3 Harmony Recovery ONE Proposal

Governance
1

What Happened:

In June 2022, a hack on the Horizon Bridge resulted in an exploit on Harmony’s ERC Bridge, leading to a total loss of approximately $100,000,000. This hack causing an excessive printing of 1Assets like 1USDC and 1USDT, which subsequently decreased their value and led to a devaluation. Opportunists capitalized on this situation by purchasing the depeg assets at a discounted rate and depositing them into AAVE. Despite the devaluation after the hack, AAVE maintained a 1:1 price ratio for these assets post-hack. This allowed these opportunists to deposit their depeg assets and borrow ONE from AAVE and drained out ONE from AAVE completely.

Problem in AAVE:

At present, 55.19M ONE has been drained off from AAVE V3 Harmony and the market has been brought to a complete freeze. The ONE reserves in AAVE, which were completely borrowed, held a value of about $1.1M at the time of the hack. However, these assets are now worth only $500K.

Proposed Solution:

Remove AAVE bad debt by creating a 10% ($50K) together with AAVE also add 10% ($50K) payment of the fund to remove the debt by allowing AAVE holders to exchange for ONE.

Reasoning:

When Harmony was hacked however AAVE didn’t move quick enough to protect their protocol in pricing variable after the hack.

Assumption:

This proposal may not entirely eliminate the bad debt, but it will make a beneficial solution to reduce bad debt and provide compensation to AAVE holders.

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Any solution is better than no solution. Recovering 20% after more than a year is better than nothing. I would vote yes if there’s a vote on this proposal and encourage everyone to do the same.

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Need to proposal and Vote soon

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Hi all - this is Owen, a reporter for The Defiant (https://twitter.com/DefiantNews). I’m working on a story about the recovery efforts for users of Aave’s deployment on Harmony after the June 2022 bridge hack.

If you’ve been effected directly by the hack, please consider reaching out to owen@thedefiant.io. I’d love to schedule a brief interview to talk about your perspective. Thank you.

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At least something moving. Even tough 20% is very few for a year and a half waiting.

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We want to give our roadmap/timeline for this project:

Proposal Step for AAVE:
-Open up, post on a forum- Complete
-Have a consensus vote for snapshot - Next Step
-Bring the snapshot back and doing collaboration with the community - Following Step
-Submit officially into their approval process - Following Step
-Have a vote on it - Following Step

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Could @bgdlabs assist here please? Recoveryone is trying to reach out to the community, it would be nice to have the community actually replying. Thank you

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Hello @boubou158.

We are technical service providers of the DAO, so at the current stage of the proposal (TEMP CHECK Snapshot is next for our understanding), it is not our role to support. There are other engaged entities of the community like ACI (@MarcZeller ) which can guide the proposer through the governance procedure: temp check, ARFC, and AIP.

Once/if the proposal passes the ARFC Snapshot, we can of course support the proposer on the technical matters, same as with any other community contributor.

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Thanks for the clarification. We value your insights and anticipate your support post-Snapshot vote. @Selvy will lead this, and Recovery One Foundation will amplify it on social media for greater impact and engagement.

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I’m not sure if you’ve seen it, but The Defiant recently published an article about this process. As we continue with the recovery, I expect more media coverage to highlight the efforts of the community, Aave, and Harmony in rectifying the situation.

The Defiant Article: Aave Assets Still Stuck Over a Year After $100M Harmony Bridge Hack

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Hope can Recovery One Foundation push this issue soon to more media !

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Something for the ONE community to consider.

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next step… “Have a consensus vote for snapshot - Next Step”

Snapshot

Votes are recorded off-chain, and it’s not currently possible to trigger on-chain effects or protocol changes with the vote results. Because of this, Snapshot votes are most useful for “soft governance” - the process of gauging community support or opposition to a protocol change before putting it up for an on-chain vote.

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@bgdlabs, we have a question regarding the voting process in Aave governance, as we are not fully familiar with it. (We want to ensure we are following the process correctly).

Our next step is ‘Have a consensus vote for snapshot - Next Step.’

At this stage, do we need to possess 1.6k AAVE tokens now, or is it necessary to have the 1.6k AAVE only at the time we publish a final vote?

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Hello, @mbarret3 . For questions and support regarding the pre-technical phase, we recommend you to get in touch with ACI (@MarcZeller ), another service provider of the DAO, as guiding on those steps is part of their engagement.

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hello @mbarret3

the only thing you need to do is a standard TEMP CHECK, once that’s published, I will handle the rest.

here’s the framework:

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Title: [TEMP CHECK] AAVE V3 Harmony Recovery ONE Proposal

Author: [@mbarret3 & Selvy/RecoveryONE & R1Ambassador]

Date: 2023-12-02

Summary

This proposal addresses the bad debt incurred by the Aave protocol on the Harmony network due to the Horizon Bridge exploit in June 2022. It proposes a solution to remove the bad debt and compensate AAVE holders by creating a fund and allowing token exchange.

Motivation

Problem Statement

In June 2022, the Horizon Bridge hack resulted in the exploit of Harmony’s ERC Bridge, leading to a loss of approximately $100 million.

This hack caused an excessive printing of assets like 1USDC and 1USDT, devaluing them significantly.

Opportunists exploited this by buying these devalued assets at a discount and depositing them into Aave.

Despite the devaluation, Aave maintained a 1:1 price ratio for these assets post-hack, allowing users to borrow ONE and drain it completely from the protocol.

As of today, 55.42M ONE has been drained from Aave V3 Harmony, bringing the market to a standstill. So we would ask Harmony to add a fund of 5,542,000 ONE and Aave to add 5,542,000 ONE.

Impact

Aave currently holds bad debt of approximately $751K due to this exploit.

The lack of immediate action by Aave to adjust pricing variables after the hack exacerbated the issue.

Specification:

This proposal suggests bad debt removal approach

Bad Debt Removal:

Create a fund 10% (5,542,000 ONE) from Harmony Recovery ONE and 10% (5,542,000 ONE) from AAVE treasury.

Use this fund so that Aave holders can withdraw their deposited tokens in exchange for 20% of their original deposit value.

Implementation

Aave DAO governance will vote on this proposal.

If approved, a smart contract will be deployed to facilitate the token exchange and fund creation.

Disclaimer

This proposal is not without risk and does not guarantee a complete resolution of the bad debt issue. The Aave community is encouraged to carefully consider the potential benefits and drawbacks before voting.

Next Steps

Get community feedback on TEMP CHECK

Snapshot vote

Copyright

Copyright and related rights waived via CC0.

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Thank you, @Selvy. @MarcZeller, we want to clarify that neither the Recovery One Foundation nor our R1 Ambassadors are in possession of Aave tokens. Is it necessary for us to have Aave tokens to initiate the first temperature check?

I’d like to point out that for the proposed solution, the Recovery One Foundation will provide the ONE tokens.

This is in the context of HIP30v2, which is Harmony’s network evolution and the redistribution of ONE tokens. Specifically, the divide of the annual emission of 441 million ONE tokens into two parts: 75% is allocated for staking rewards, and the remaining 25% is earmarked for recovery purposes. Of this 25%, the allocation will be managed by a Recovery Multisig and allocated to the recovery burn partners.

Link: HIP30v2: Harmony's Network Evolution and Token Redistribution

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yeh I suggest you redo a topic with that now, and let the governance process take it’s course

with the ACI we’ll handle the rest.

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@MarcZeller Okay, done. Thank you, sir. Here is the link to the new topic. Thank you to the Aave community, Selvy, and the R1 Ambassador for your efforts in resolving this situation. The Recovery One Foundation is looking forward to facilitating this solution.

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