Thank you to the Aave and Harmony communities for your feedback and solutions. After reviewing 14 proposals (ARC: Harmony Recovery - #169 by mbarret3), we have crafted a solution that incorporates many of your ideas and aligns with the recovery efforts. Additionally, we have considered Tranquil Finance’s strategy, which involved burning 1Assets and eliminating “bad debt” from their protocol.
We encourage the Harmony and Aave communities, along with their respective teams, to provide feedback and contribute to the enhancement of this solution. We aim to transition to a governance vote on a final resolution by the end of June.
Problem:
The bad debt, stemming from the hack on the Aave protocol on the Harmony blockchain, resulted in significant fund loss for numerous users. This bad debt is currently inhibiting users from accessing their funds.
Solution:
The initial step involves the implementation of the decaying oracle mechanism as suggested in Proposal 14. This mechanism allows users to liquidate these depegged assets at a progressively diminishing value. By encouraging the early liquidation of assets, this approach expedites the removal of depegged assets from Aave. As the debt is primarily comprised of wONE tokens, liquidating depegged assets using wONE tokens would withdraw those assets from the market while simultaneously providing wONE liquidity to the victims of the hack. Harmony could contribute 10% of the necessary funds for this recovery effort, and Aave could match this with another 10%, enabling affected users to recoup 20% of the pre-hack amount. Any remaining “bad debt” would be evenly split between Harmony and Aave.
Note: The depreciated assets held by the Aave DAO Harmony treasury, approximately 2m aONE and 700 aLINK, should be considered a loss and incorporated as part of the 10% contributed by Aave.
Timeline:
After final revisions, this recovery plan should be put up for a governance vote. If a final plan receives approval, the recovery process should span a period of four years. Nevertheless, this timeline could be extended or shortened based on market conditions.
Outcome:
The expected outcome of the recovery plan is to compensate users affected by the Aave protocol hack on the Harmony blockchain. This compensation would facilitate user access to their funds and reinstate their financial security. The recovery plan also aims to reestablish confidence in the Aave protocol and the Harmony blockchain.
Final Note: This effort is being carried out in good faith. This document is a draft version and we anticipate modifications and contributions from all stakeholders.