ARC: Harmony Recovery

So will never recover my frozen ONE in aave?, looks like aave is a scam project.

Why is it a scam?
People created a Snapshot (not aligned with guidelines) and people voted against it, thats decentralisation. Maybe, if it had more information and good structure, the output would have been different.
Just try again, but think about a good approach and get people together to vote in favour for you.

Wishing you good luck.

Hey mate, yeah, you’re not helping. It is a sucky situation, I’m in the same boat, but shouting insults won’t help for sure.

1 Like

Hello Marc

The proposal has, obviously, failed, but we did reach the 320K AAVE quorum. I will re-read the governance process you linked, and using feedback I received in this thread, re-write the proposal from scratch. I would appreciate any help from the team, as you mentioned above.

Thank you

2 Likes

Guys i love decentralization. This vote made me want to make a better proposal. People who only know how to complain without helping, be nice, at least help to vote next time.

5 Likes

Hello folks

The following is Aave Request for Comment (ARC). I tried my best to follow Governance docs. Please review this improved proposal and give feedback on what do you think should be different/changed/improved. I will update this post with any suggestions below.

ARC: Recovery of ONE holders on AAVE Harmony

Short Description
Following the Harmony bridge exploit, AAVE users who staked their ONE coin into AAVE are now not able to withdraw ONE from AAVE. The goal of this proposal is to compensate these users.

What Happened
In June 2022, an exploit in Harmony bridge caused an essentially infinite print of 1Assets, such as 1USDC, 1USDT, etc. This caused them to depeg and fall in value essentially to 0$. Read more about the exploit here. Now, having huge amounts of these 1Assets, bad actors have deposited them into Aave Harmony and borrowed out ONE tokens staked by other users. Aave protocol was using global price feeds for USDC, USDT and other tokens, so it allowed these transactions. Since then, Aave paused all operation on Harmony. Owners of those borrowed out ONE tokens are now unable to withdraw their coins, despite being technically unaffected by the original exploit.

The Problem
There are currently 54.30M ONE tokens (1.04M$ at the time of writing) fully borrowed out on Aave Harmony. These belong to holders of aHarWone token (0x6d80113e533a2C0fe82EaBD35f1875DcEA89Ea97), which is the deposit proof Aave issues upon deposit. This token is 1:1 with the ONE token deposited. Normally users could redeem their aHarWone for ONE tokens, but now they are borrowed out and thus unredeemable. This loss of assets originally unaffected by the exploit really broke the trust for Aave users, and is bad reputation for Aave as an ecosystem.

The Solution
I propose Aave to take responsibility for the borrowed out ONE coins ONLY, and compensate the depositors. According to the Dune Dashboard, Aave DAO has a reserve of 86M USD (at the time of writing), with roughly 2M USD of profits coming in every month. I propose Aave DAO to dollar cost average 50% of profits coming in, into ONE coin, until the total number of ONE coins in Aave’s ownership reaches 54.30M tokens - the exact amount of borrowed out ONE (+ small amount for gas). Once the full amount is reached, Aave Dao will transfer these tokens to holders of aHarWone, in proportion with their holding. This plan is designed to not instantaneously deplete Aave’s treasury, but to gradually save some of the profits. This would make innocent users whole and improve Aave’s reputation and popularity.

  • Yes, I would vote for this proposal
  • No, I would vote against this proposal
  • Abstain

0 voters

2 Likes

I am for this proposal, AAVE would be left holding the bag so to speak, but they would also have/gain complete control over the depegged assets and be able to decide how to move forward from this mess, wether that means selling all the depegged assets at a loss, holding out for Harmony team reimbursement, participating in the recovery process, closing down Harmony AAVE or reopening Harmony AAVE without any bad debt. :partying_face::saluting_face:

Edited: because my late night phone reply got grammatically butchered by autocorrect.

1 Like

This proposal is well written. Thank you.

Reputation and Trust are the keys in Financial System. Otherwise, no one wanna supply assets to AAVE anymore. The AAVE Treasury was meant to deal with this kind of event (similar to the traditional bank insurance system). It is crucial to regain trust to investor/depositors that benefits all stakeholders including aHarWone holders and unaffected AAVE holders

2 Likes

How do you propose:

  1. The Aave DAO goes about purchasing ONE?
  2. The Aave DAO moves assets to the harmony chain?

Other questions:
a) Have you considered how this redirection of funds will impact other functions of the DAO?
b) How does this fit in with the Harmony Team’s recovery plan (if at all?).

Very good questions, thank you

  1. The Aave DAO goes about purchasing ONE? & 2. The Aave DAO moves assets to the harmony chain?
  • Just checking where it trades, there are many CEX’s that support ONE. Largest one being Binance, which would also solve the second question.
    However, if CEX are unusable, there are alternative decentralized bridges that work on Harmony:
    Harmony ONE-ETH Bridge (This one is the new official bridge, hopefully no exploits this time :smiley: )
    https://synapseprotocol.com/
    Aave can collect the sum on Ethereum, then bridge and convert into ONE on a local DEX. I figured I can leave implementation details to the team, they’d know way more than me about how to do this best, with lowest fees, etc.

Should I include the above in the proposal? ^^^

a. Have you considered how this redirection of funds will impact other functions of the DAO?

  • I haven’t looked deeply into Dao operations, but assuming the 86M figure for Aave treasury is correct, eating up 50% of revenue for less than a month should only put a little dent in it. We can discuss decreasing the percentage, to say 25%. This would make recovery slower, but put less dent into Aave’s revenue.
  1. How does this fit in with the Harmony Team’s recovery plan (if at all?).
    Harmony recovery plan is not for ONE token, it’s for depegged assets only, afaik. That’s the reason this proposal targets ONE holders only. Once the debt is released, Aave Dao can decide whether to participate or not, using the depegged assets still deposited in Aave Harmony that will now belong to the Dao.
2 Likes

Harmony Team has been giving funds to “Recovery One” (A team of validators/dApps/community members) to repurchase and burn depegged assets. They have been buying them at market value wich deppeged is ~1/10th value. However eventually they will run out of market value deppeged assets to buy and burn and/or market value will increase as supply diminishes, and they will have to pay more to continue.

AAVE could either sell the depegged assets for 1/10th value or hold and wait for the value to increase.

Why only aHarONE? What’s about aHarLINK? Both assets are not unpeged so why only release one and not the other?
Let’s make a full solution and not just a 50% solution otherwise we will discuss this still in the next 2 years.
Full release and then close the v3 on Harmony as on Fantom

Last proposal was rejected partially because it was too broad. I don’t want to blow up scope on this one.
If this one succeeds, you can copypaste this one and replace ONE with Link, how about that

So, eventually, Recovery One will bring all depegged asset to peg? Seems like when that happens the market could resume and ONE holder can withdraw without any other issues?

Yes, but the issue is time, they project it will/ could be a couple years. Us small holders would like to be able to access our money before then, invest, reinvest, spend, acrue staking rewards etc, this would be less of an issue for a protocol such as AAVE where this $ is just a drop in the bucket, vs being peoples entire life savings

3 Likes

Waiting a couple more days (to give a week to review ARC)
Then I will adjust the proposal to include answers to some of the good questions people have posted, and then we can try again.

I see that 50% of votes are still against the proposal. If you voted against, please elaborate on why? Is there anything that can be improved to make you vote yes?

2 Likes

Some issues still outstanding (imo)

High Priority issues:

  • unclear what the mechanism of swapping the assets to ONE will be. the DAO cannot use a CEX, we’d have to work with a service provider to facilitate this trade. This will incur additional cost (see Llama’s CRV purchase on the DAOs behalf). Additionally, since ONE is a low liquidity coin, the DAO could experience both slippage and front running on such a ‘big’ trade.
  • If ONE is transferred to aONE holders, what happens when the depegged assets return to peg? The aONE holders can withdraw their ONE and receive 2x their ONE tokens? There are many simple solutions to this that dont involve sending ONE to aONE holders.

Lower priority issues:

Note these increase complexity but should at least be acknowledged if not discussed imo.

  • Should aONE holders receive the interest on the underlying ONE? When the bridge attack first happened the APR rose to ~250% for nearly a month, aave could reduce the cost by some amount (5-15%?) by not bailing out post hack interest.
  • Could aave offer aONE holders the option to exit their aONE at some discount now or hold to redeem the full underlying collateral if the harmony team successfully executes their recovery plan? This could also offer instant liquidity to those who want it with higher returns for users with a longer time horizon.

^ I realize both of these ideas are less appealing to aONE holders, but may be more digestible to the DAO who will ultimately decide on this.

just my 2c.

Harmony team itself might be able to facilitate a trade from their treasury with no slippage, but I cant speak for them.

Should aONE holders receive the interest on the underlying ONE? When the bridge attack first happened the APR rose to ~250% for nearly a month, aave could reduce the cost by some amount (5-15%?) by not bailing out post hack interest.

If(If) AAVE allows us to trade our aONE for ONE at a 1:1 basis.

aONE holders also lost the ability to exit their positions when Harmony was 3X-5X times its current value, 5-15% is fiarly negligible, considering AAVE would be getting the aONE and its locked :lock: ONE equivalent, they would then also gain control of the depegged assets and their currently depreciated value, but potentially full value upon repeg. Effectively doubling their money +/- any impermanent loss that occurs between now and the time that loss or gain is realized.

“buying aONE” doesnt mean “they would then also gain control of the depegged assets”.

That’s not how Aave works.

They can just turn the APY back up to 2,000%, the collateral Eth/Stable coin assets will be liquidated.

The exploiters arent coming back for their depegged assets.